Today's Headlines

Bloomberg:

- The S&P 500 is 8.6% below its “fair value” based on expected profits, said Abby Joseph Cohen, a senior investment strategist at Goldman Sachs(GS). A year from now the S&P 500 should be higher than 1,000, she said.

- The S&P 500’s 10-day rally since March 9 signaled more gains ahead, as rising stocks exceeded falling ones to a degree seen only seven other times since 1930, Bespoke Investment Group said. Advancing stocks outnumbered decliners by an average of 36% of the number of equities listed on the NYSE. The main index for American equities has posted additional gains in the week, month and quarter following six of the seven other 10-day rallies in which breadth averaged more than 35%, Bespoke said.

- Deutsche Bank AG and Credit Suisse Group AG, two of Europe’s biggest banks, said 2009 started well after they posted losses last year and cut the compensation of their chief executive officers by about 90 percent. Deutsche Bank CEO Josef Ackermann said Germany’s biggest bank may return to profit in 2009 after a “good start” to the year. Credit Suisse, Switzerland’s second-biggest bank by assets, is positioned “to prosper when markets recover,” the Zurich-based company said in its annual report, published today. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said this month that they were profitable in the first two months of the year, lifting the Bloomberg Europe Banks and Financial Services Index by 36 percent in the past two weeks.

- Saudi Aramco will invest 100 billion riyals ($27 billion) in building the Ras Tanura petrochemical project with Dow Chemical Co. as the world’s biggest state oil company maintains spending to expand production amid the global credit crunch. Saudi Arabia, the world’s largest oil supplier, “still holds on to its long-term investments in expanding its oil and gas sectors,” Aramco’s Chief Executive Officer Khalid A. Al- Falih said in an e-mailed statement received late yesterday. The kingdom plans to increase crude output capacity to 12.5 million barrels a day, a move that it says will help allay market volatility and concern about adequate supply. Aramco plans to implement 144 projects in the next five years, of which eight are “giant,” to help reach its output targets. Oil producing countries should use the economic crisis to “formulate future investment strategies and prepare for the coming economic expansion periods,” Al-Falih said in the statement. Saudi Arbaia is funneling about $90 billion of its oil wealth back into production and refining in the next five years in an effort to retain its status as the world’s largest oil exporter.

- China, the world’s second-biggest energy users, raised fuel prices for the first time this year to reflect the gain in global oil prices. The gasoline price will be increased by $42 a metric ton, starting tomorrow, citing the National Development and Reform Commission, China’s top economic planner.

- Wall Street bond trading is heading back to the 1980s, when private partnerships and independent firms dominated the market. Jon Bass, who traded debt five seats from Salomon Brothers Inc. Chairman John Gutfreund and later helped run fixed income at UBS AG, joined equity broker BTIG LLC to help start its credit operation last month. BTIG, with a pool table and gym adjoining its seventh-floor midtown Manhattan trading room, is one of more than 50 credit dealers seeking to take advantage of the widening gap at which securities are bought and sold. Smaller firms are emerging from the wreckage of the world’s largest financial companies, which are conserving capital following more than $1.2 trillion of writedowns and credit losses since the start of 2007. They’re luring traders with a shot at $500,000 commissions for two days’ work as banks that accepted federal bailouts retrench and slash bonuses.

- The cost of protecting corporate bonds from default tumbled on speculation Treasury Secretary Timothy Geithner’s $1 trillion toxic-asset plan will ease the global credit crisis. The Markit iTraxx Crossover Index of credit-default swaps on 45 companies with mostly high-risk, high-yield credit ratings dropped 20 basis points to 885, according to JPMorgan Chase & Co. at 10:34 a.m. in London. “This really could be the sale of the century,” Gary Jenkins, head of fixed income research at Evolution Securities, wrote in a note to investors. “It’s not every day an investor gets the opportunity to bid on an asset where they only have to put in 1/14 of the total price but receive 50 percent of the profits.” The plan calls for investors to inject 7.14 percent, or 1/14, of the purchase price into a fund. The government will match the investment and subsidize the remaining 85.7 percent with a Federal Deposit Insurance Corp.-guaranteed loan. The Markit iTraxx Financial Index tied to 25 European banks and insurers dropped 2 to 158 and the subordinated index decreased 8 to 297. The new program “should support asset values and liquidity,” Deutsche Bank AG Sydney-based analysts Gus Medeiros, Colin Tan and Ken Crompton said in a note to clients today. The new mechanism for asset purchases removes some uncertainty and “may prevent banks from hoarding assets to avoid writedowns.”

- Crude oil fell from the highest close in almost four months as a stronger dollar reduced the appeal of commodities to investors, and on speculation that a government report will show U.S. inventories gained. Oil fell as much as 1.7 percent after the U.S. currency rebounded against the euro. A stronger dollar makes commodities less attractive as a hedge against inflation. U.S. crude oil supplies probably rose last week, according to a Bloomberg News survey before an Energy Department report tomorrow. “The fundamentals of supply and demand don’t justify oil going to $55 or $60,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “The supply of oil in the United States definitely doesn’t justify the rally. I think we will go down into the high $40s.” “OPEC countries can do very little to push prices up,” former Saudi Arabian Oil Minister Sheikh Ahmad Zaki Yamani said today at a seminar organized by the London-based Centre for Global Energy Studies. Crude-oil demand is set to “collapse” in the second quarter as refiners trim imports for seasonal maintenance, Edward Morse, head of economic research at LCM Commodities LLC, said at the CGES conference. U.S. government measures to resolve the financial crisis have helped prices stabilize and will likely prevent a drop toward $30 a barrel, he said. “Oil-market fundamentals remain weak, they don’t justify $50 a barrel; $75 is wishful thinking,” Morse said.

- Gold fell the most in almost a week on speculation that a U.S. government plan to rid banks of toxic assets will revive lending and the economy, eroding the appeal of the precious metal. Silver also declined. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped from a record yesterday for the first time since March 6. “Let’s not forget that gold is one of the best barometers of pessimism still out there,” said Jon Nadler, an analyst at Kitco Inc. in Montreal. Gold gained this year as investors bought the metal as a store of value against financial turmoil, analysts said. “Gold prices will face pressure from the stock market’s favorable reception of the Treasury’s plan to remove toxic assets from banks’ balance sheets,” said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago. “The strength could cause timid investment in gold to flow toward equities.”

- The U.S. Senate may delay considering a tax increase on employee bonuses like those paid by American International Group Inc. after President Barack Obama signaled reservations and Republican opposition hardened.

- China’s call for a new international reserve currency may signal its concern at the dollar’s weakness and ambitions for a leadership role at next week’s Group of 20 summit, economists said. Central bank Governor Zhou Xiaochuan yesterday urged the International Monetary Fund to create a “super-sovereign reserve currency.”

- Richard Bernstein, chief investment strategist, and David Rosenberg, the chief North American economist, plan to leave Bank of America Corp. within two months, a company spokeswoman said. Bernstein, 50, will start his own money management company after leaving on April 15, and Rosenberg, a native of Canada who plans to leave on May 11, will join Gluskin Sheff & Associates in Toronto, said a person familiar with the decisions.

- The yen fell to a five-month low against the euro as U.S. plans to help banks dispose of toxic assets spurred investor appetite for higher-yielding currencies.

- China carried out more executions than the rest of the world put together last year, Amnesty International said today as it pushed for nations to abolish capital punishment. Of 2,390 recorded executions in 25 nations, 72 percent, or at least 1,718, were in China, the London-based human rights group said in a report.

- Allergan Inc.(AGN), maker of the Botox wrinkle treatment, rose to the highest value in five months in New York trading on speculation the company might be bought. Allergan surged $4.07, or 9.4 percent, to $47.24 at 11:22 a.m. in New York Stock Exchange composite trading. Earlier the shares rose to $50.25, the highest since Oct. 2.

Wall Street Journal:

- One Way to Stop Bear Raids. In all the uproar over AIG, the most important lesson has been ignored. AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions. What we must take away from this is that CDS are toxic instruments whose use ought to be strictly regulated: Only those who own the underlying bonds ought to be allowed to buy them. Instituting this rule would tame a destructive force and cut the price of the swaps. It would also save the U.S. Treasury a lot of money by reducing the loss on AIG's outstanding positions without abrogating any contracts. CDS came into existence as a way of providing insurance on bonds against default. Since they are tradable instruments, they became bear-market warrants for speculating on deteriorating conditions in a company or country. What makes them toxic is that such speculation can be self-validating. Going short on bonds by buying a CDS contract carries limited risk but almost unlimited profit potential. By contrast, selling CDS offers limited profits but practically unlimited risks. This asymmetry encourages speculating on the short side, which in turn exerts a downward pressure on the underlying bonds. The negative effect is reinforced by the fact that CDS are tradable and therefore tend to be priced as warrants, which can be sold at anytime, not as options, which would require an actual default to be cashed in. People buy them not because they expect an eventual default, but because they expect the CDS to appreciate in response to adverse developments. It's clear that AIG, Bear Stearns, Lehman Brothers and others were destroyed by bear raids in which the shorting of stocks and buying CDS mutually amplified and reinforced each other. The unlimited shorting of stocks was made possible by the abolition of the uptick rule, which would have hindered bear raids by allowing short selling only when prices were rising. The unlimited shorting of bonds was facilitated by the CDS market. The two made a lethal combination. Many argue now that CDS ought to be traded on regulated exchanges. I believe that they are toxic and should only be allowed to be used by those who own the bonds, not by others who want to speculate against countries or companies. Under this rule -- which would require international agreement and federal legislation -- the buying pressure on CDS would greatly diminish, and all outstanding CDS would drop in price. As a collateral benefit, the U.S. Treasury would save a great deal of money on its exposure to AIG.

- A senior fund manager from BlackRock Inc.(BLK) praised the latest details of the government's bank rescue program Monday and said the plan will help stabilize credit markets and offer investment opportunities. Curtis Arledge, co-head of U.S. Fixed Income in BlackRock's Fixed Income Portfolio Management Group, said the company plans to apply as an investment manager with the Treasury's public-private investment program, which is aimed at helping banks remove toxic assets from their balance sheets. BlackRock rival Pacific Investment Management Co. has also said it plans to apply for an investment management slot.

- The biggest peril hedge-fund investors see in the months ahead isn’t the credit-market paralysis that has spawned a rising number of government spending programs, nor is it the expected performance of funds chastened by the industry’s worst year on record in 2008. No, the biggest concern among hedge-fund investors in 2009 is hedge-fund investors themselves. In a shrinking fund universe that soon could control just half the assets it did a year ago, hedge-fund clients are eying each other. Withdrawals of money top the list of biggest challenges fund managers face in the next 12 months, according to the 2009 Alternative Investment Survey out today from Deutsche Bank. The very question of survival for hedge funds rests most solidly on the issue of how much money investors will pull, versus how much they will keep in place to ride out the financial storm, the seventh annual report shows.

CNBC:

- PIMCO portfolio manager Paul McCulley expects collaterialized debt obligations to be part of the US government’s plan to purchase toxic assets to revive the world’s largest economy. “When you said ‘toxic assets,’ that includes a lot of things,” McCulley said. “I think ultimately CDOs will be involved in this process.”

- The growing inventory of distressed homes on the market may be sending shock waves through the economy, but it’s also giving investors a wider window of opportunity.

- An email from the head of a controversial unit at AIG suggests employees who gave up their bonuses did not do so voluntarily, but feared their names would be released if they did not. The email, obtained by CNBC, states the following: “Please be aware that we have received assurances from Attorney General Cuomo that no names will be released by his office before he completes a security review which is expected to take at least a week. To the extent that we meet certain participation targets, it is not expected that the names would be released, at all.”

FHFA:
- U.S. home prices rose 1.7 percent on a seasonally-adjusted basis from December to January versus consensus estimates of a .9% decline, according to the Federal Housing Finance Agency's monthly House Price Index. December's previously reported 0.1 percent increase was revised to a 0.2 percent decline. For the 12 months ending in January, U.S. prices fell 6.3 percent. The U.S. index is 9.6 percent below its April 2007 peak.

ForexTV.com:

- Manufacturing activity in the U.S. Mid-Atlantic states picked up in March, according to a report from the Richmond Federal Reserve on Tuesday.The headline manufacturing index surged to a reading of -20 in March, beating expectations for a -51 reading. In February, the index stood at -51. Shipments catapulted to a reading of -15 in March from -56, while the new orders component rose to -20 from a prior reading of -54. The employment index rose to -28 from -41. Capacity utilization climbed two points to -14 from -44 in February, while the orders backlog rose to -37 from -51. The monthly Richmond Fed Manufacturing Index is a gauge of broad activity of manufacturers based in the Carolinas, the District of Columbia, Maryland, Virginia and West Virginia. It is a composite index representing a weighted average of the shipments, new orders and employment indexes.

Seeking Alpha:

- The iPhone now accounts for 50 percent of mobile Web traffic from smartphones in the U.S., according to an AdMob Mobile Metrics report released Tuesday morning. Over the past six months, the iPhone has taken share from Blackberry and Windows Mobile. In August 2008, the iPhone made up only 10 percent of mobile Web traffic from smartphones. During the same time, Blackberry’s share has gone from 32 percent to 21 percent (with the Curve and the Pearl coming in stronger than the Storm), while Windows Mobile has taken an even bigger hit, declining from 30 percent to 13 percent. Palm is also down to 7 percent from 19 percent six months ago. The only other smartphone operating system that is showing gains in mobile Web usage is Android, which has captured a strong 5 percent share just three months after launch. And that is up from 3 percent in January. The gains shown by the iPhone and Android show what is possible when phones are built with fully capable browsers and support a rich array of Web apps.

Scientific American:

- Research showing an El Nino event in 1918 was far stronger than previously thought is challenging the notion climate change is making El Nino episodes more intense, a U.S. scientist said on Tuesday. El Nino causes global climate chaos such as droughts and floods. The events of 1982/83 and 1997/98 were the strongest of the 20th Century, causing loss of life and economic havoc through lost crops and damage to infrastructure.

Boston Globe:

- President Barack Obama's aunt, a Kenyan immigrant who ignited controversy last year for living in the United States illegally, has returned to her quiet apartment in a Boston public housing project to prepare for an April 1 deportation hearing that will be closed to the public. She had been living in the country illegally since she was ordered deported in 2004. Now the woman Obama called "Auntie Zeituni" and described as a kindly woman who kissed him on both cheeks and guided him during his trip to Kenya 20 years ago, is in a national spotlight, where her case is seen as a test of the Obama administration's commitment to enforcing immigration laws. Critics, outraged that she is living in taxpayer-funded public housing while thousands of citizens and legal immigrants are on waiting lists, are scrutinizing the case for political favoritism. Others caution that she may have legitimate grounds to stay in the United States.

- The health care costs of Alzheimer's disease patients are more than triple those of other older people, and that doesn't even include the billions of hours of unpaid care from family members, a new report suggests. Compared with people aged 65 and older without Alzheimer's, those with the mind-destroying disease are much more often hospitalized and treated in skilled-nursing centers. Their medical costs also often include nursing home care and Medicare-covered home health visits. That all adds up to at least $33,007 in annual costs per patient, compared with $10,603 for an older person without Alzheimer's, according to a report issued Tuesday by the Alzheimer's Association.

Detroit Free Press:

- More than three in five Americans -- 61% -- oppose more government loans to General Motors Corp. and Chrysler LLC, according to a R.L. Polk survey released Monday that is consistent with other recent opinion research. The Polk results came one day after President Barack Obama told CBS "60 Minutes" interviewer Steve Kroft that "the only thing less popular than putting money into banks is putting money into the auto industry." In the Great Lakes region, where auto manufacturing is more prevalent, 16% "strongly agreed" when asked by Polk if they supported loans for GM and Chrysler. That compares with only 4% in the New England region.

NetworkWorld:

- A regional China Unicom Web site posted pictures and specs of the iPhone 3G and the Google Android-based G1 as rumors built that the mobile carrier could offer the iPhone 3G in China. The information (in Chinese), which listed smartphones supported by the 3G network China Unicom is building, appeared only on the Web site of the company's Shanghai branch and did not say whether the products would be offered in China. The site's changes follow media reports that a China Unicom delegation visiting Apple last week made a breakthrough in talks over offering the iPhone 3G on its network.

FINalternatives:

- Amidst the populist uproar about taxpayer-funded bonuses at insurer American International Group, here’s a tidbit bound to bring a smile to the faces of schadenfreudicts: Hedge funders made a lot less money last year. The average total compensation for hedge fund professionals fell 15.5% in 2008, and the average cash bonus fell 24%, according to Alpha magazine. Alpha’s third-annual hedge fund compensation report found that the average total compensation for all hedge fund professionals fell from $940,000 in 2007 to $794,000 last year. Worse still for hedgies, a quick rebound seems altogether unlikely. “A third of this industry is going away and not coming back,” John Pierson, CEO of search firm 10X Partners, said.

Market Folly:

- Pequot Capital March Commentary(Byron Wien).

Politico:

- At a time when his Washington honeymoon is turning into a hazing, President Barack Obama and his team are launched on a strategy to sail above the traditional White House press corps by reaching out to liberal commentators, local reporters and ethnic media. The highest-profile moments in the new approach have been well-noted, such as the president giving an interview to progressive radio host Ed Schultz and Obama calling on a reporter from the liberal-leaning Huffington Post at his first news conference. But those moves are only part of a much larger strategy aimed at communicating directly with audiences the White House believes are more sympathetic to the president’s agenda — and one in which much of the work is being done by Obama’s top advisers.

- White House press secretary Robert Gibbs said again Monday that it’s too early to say whether Democrats will use the budget process to ram through the president’s legislative agenda. But Senate Republicans — and even some Democrats — have a message for the Obama administration: Don’t even think about it.

Boston Herald:

- The honeymoon is over, a national poll will signal today as President Obama’s job approval stumbles to about 50 percent over the lack of improvement with the crippled economy. The sobering numbers come as the president backpedals from two prime-time gaffes - one comparing his bowling score to a Special Olympian and another awkwardly laughing about the economy, which prompted Steve Kroft of “60 Minutes” to ask “are you punch-drunk?” Pollster John Zogby said his poll out today will show Americans split on the president’s performance. He said the score factors out to “about 50-50.”

Reuters:
- Here’s another one that you can loosely file under “Government aid to newspapers,” even though there’s no money that taxpayers would fork over to newspapers. Maryland Democratic Senator Benjamin Cardin introduced a bill on Tuesday to allow newspapers to become non-profit organizations to help them survive.

- The U.S. economy should start growing by the end of this year and unemployment, expected to peak at around 9 percent, will begin to decline in 2010, Chicago Fed President Charles Evans said on Tuesday. "I think the U.S. economy will certainly begin to grow by the end of this year. I think the unemployment rate will begin to decline sometime in 2010, though I think it's going to take some time."

- US realtors see some light at end of tunnel.

Financial Times:
- In another small sign of life for the US housing market, the Mortgage Bankers Association said on Tuesday that mortgage demand will swell this year bringing the number of new home loans to the fourth highest total on record. The MBA revised its forecast for new loans upward by $800bn, predicting that aggressive Federal Reserve policies will drive the total loans originated to reach 2,780bn, the most since 2005. The revision was sparked by falling interest rates following last week’s Fed decision to purchase Treasury bonds and mortgage-backed securities which is expected to create a flurry of refinancing activity. “The vast majority of mortgages originated before the latter part of 2008 are probably going to have at least a 50 basis point refinance incentive for at least the next several months, with mortgage rates hitting lows not seen since the early 1950s and late 1940s,” said Jay Brinkmann, MBA’s chief economist. recent monthly figures have shown some bright spots in the stricken housing market. On Tuesday the Federal Housing Finance Agency estimated a better-than-expected 1.7 per cent rise in US home prices in January from the previous month. The annual drop of 6.3 per cent was the smallest in five months as the pace of declines has slowed. On Monday the National Association of Realtors said that home resales rose by 5.1 per cent in February from the month before while the median price of an existing home inched up.

La Tribune:

- Iraq plans to sign contracts by the middle of 2009 for the development of six oil fields and two natural gas fields, citing the country’s Oil Minister Hussain al-Shahristani. Contracts for a further 10 oil fields and one gas field could be concluded by the end of the year.

Chinanews:

- China barred the nation’s state-owned companies from taking part in speculative hedging, citing a government official. Companies that have suffered significant losses must report them within three working days, the report said.