Late-Night Headlines
Bloomberg:
- The cost of protecting Japanese corporate bonds from default fell after US The Markit iTraxx Japan index of credit-default swaps plunged 20 basis points to 470 as of 10:05 am in Tokyo
- BlueScope Steel Ltd., Australia ’s largest steelmaker, had its rating cut to “underperform” from “buy” by analysts at Merrill Lynch, who cited lower steel prices in Asia .
- Record high yields on the dollar bonds of China Properties Group Ltd. and Coastal Greenland Ltd. show some investors have no faith this year’s rebound in Chinese real estate stocks will last. While the China Se Shang Property Index of 24 developers’ shares is up 56 percent following a 65 percent plunge in 2008, prices of their dollar-denominated bonds have fallen to historic lows, according to data compiled by Bloomberg. Hong Kong-based China Properties’ $300 million of 9.125 percent notes due 2014 yield 45 percent, and Coastal Greenland, which builds in six Chinese regions, saw yields on its $150 million of 12 percent notes due 2012 rise as high as 85 percent in February. The prices show bond investors doubt China’s proposed $585 billion stimulus plan will boost the economy fast enough to prevent developers from defaulting as home prices fall.
- Goldman Sachs JBWere Pty deepened its contract iron ore price forecast to a record 40% decline because of slumping global steel production. It had forecast a 30% decline.
- Rio Tinto Group(RTP), the third-largest mining company, had its rating cut to “sell” from “hold” by Goldman Sachs JBWere Pty because of its “problematic” debt and forecast aluminum losses. “The outlook for aluminum is weak and we are forecasting losses in this division for the next two years,” analysts led by Neil Goodwill said in a report.
- It works for street traders. It can work for airlines, retailers and carmakers. But hedge funds? As the financial community staggers from disaster to disaster, some alternative-investment managers have decided that slashing their fees is the only way to salvage their business. Firms such as Centaurus Capital Ltd. and Harbinger Capital Partners are cutting the charges they levy on investors. As sales fall and redemptions increase, don’t be surprised if many others do the same thing.
- European Central Bank President Jean-Claude Trichet said policy makers are in an “ongoing process” of considering whether to adopt more unconventional monetary policies. The Frankfurt-based ECB is under pressure to outline a strategy for how it would help the euro-region economy once it runs out of room to cut interest rates.
- Treasury Secretary Timothy Geithner told leaders in Congress he will ensure taxpayers aren’t footing the bill for American International Group Inc.’s employee bonuses and indicated the firm’s “wind down” may accelerate.
Wall Street Journal:
- Rep. Barney Frank, chairman of the House Financial Services Committee, said he hopes to introduce legislation later this year to restructure government-backed mortgage investors Fannie Mae and Freddie Mac. "The current model is broken," the Massachusetts Democrat said in an interview Tuesday. One possibility, he said, is to separate the companies into entities serving two functions: one that would ensure adequate funding for the home-mortgage market as a whole and another that would provide government subsidies for housing low-income people.
- American International Group Inc. and a U.S. Federal Reserve financial vehicle agreed to pay $62 billion to settle derivative transactions with 16 investment banks, getting in return securities whose market value had fallen below $30 billion, according to a regulatory filing. The insurer and Maiden Lane III, a Fed vehicle created to bail out AIG, had previously disclosed their plan to settle AIG's credit default swaps, but hadn't disclosed ...
- General Motors Corp.'s(GM) chief executive, once a staunch opponent of bankruptcy as a way of reorganizing the ailing auto maker, has softened his view, suggesting the company could possibly emerge from a Chapter 11 filing. Rick Wagoner's comments came as GM is bogged down in talks with the United Auto Workers union over labor cost cuts and discussions with bondholders about reducing the company's debt. Signaling that GM no longer views bankruptcy as off the table could strengthen the company's hand in those negotiations.
CNBC.com: Call off Depression 2.0. While still far from health, the U.S. economy is showing some encouraging signs of life as consumers tiptoe back to the shopping mall, home builders pick up their hammers, and manufacturers clear out inventory. That suggests the soon-to-be-completed first quarter will be as bad as it gets, and apocalyptic fears of another lengthy, painful Great Depression look unwarranted.
NY Times:
- Warren Buffett Unusually Silent on Credit Rating Agencies. Berkshire owns a stake of roughly 20 percent in the Moody’s Corporation(MCO), parent of one of the three rating agencies that grade debt issued by corporations and banks looking to raise money. In recent months, Moody’s Investors Service and its rivals, Standard & Poor’s and Fitch Ratings, have featured in virtually every account of the What Went Wrong horror story that is the financial crisis. The agencies put their seals of approval on countless subprime-mortgage-related securities now commonly described as toxic. The problem, critics contend, is that the agencies were paid by the corporations whose debt they were rating, earning billions in fees and giving the agencies a financial incentive to slap high marks on securities that did not deserve them. Moody’s rated Lehman Brothers’ debt A2, putting it squarely in the investment-grade range, days before the company filed for bankruptcy. And Moody’s gave the senior unsecured debt of the American International Group, the insurance behemoth, an Aa3 rating — which is even stronger than A2 — the week before the government had to step in and take over the company in September as part of what has become a $170 billion bailout. Mr. Buffett, 78, one of the world’s richest men, is known for piquant and unsparing criticism of his own performance, as well as the institutional flaws of Wall Street. But on the subject of the conflict of interest built into the rating agencies’ business model, Mr. Buffett has been uncharacteristically silent — even though that conflict is especially glaring in his case because one of the companies that Moody’s rates is Berkshire.
PCWorld: Apple Inc.(AAPL) Tuesday previewed the next generation of its iPhone software, which will add several long-awaited features, including copy/paste, MMS and search to the smartphone and its iPod Touch cousin. Those are among the more than 100 new features slated to debut when the company launches the update this summer. iPhone 3.0 will be a free update to iPhone owners, but will cost iPod Touch users $9.95, the same price Apple used when it rolled out iPhone 2.0 last year.
Rasmussen Reports:
- Support for the Democratic Congressional candidates fell to a new low over the past week, allowing the GOP to move slightly head for the first time in recent years in the Generic Congressional Ballot. The latest Rasmussen Reports national telephone survey found that 41% said they would vote for their district’s Republican candidate while 39% would choose the Democrat. Investors now favor Republicans by a 46% to 36% margin, while non-investors would vote Democratic by a 45% to 33% margin
- The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 37% of the nation’s voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-two percent (32%) now Strongly Disapprove giving Obama a Presidential Approval Index rating of +5 (see trends).
IBD:
- Whatever the shape of the Obama administration's health care plan, it's a good bet that pharmacy benefit managers will continue to play a big role. Those are companies, like Medco Health Solutions (MHS), that bargain for lower drug prices on behalf of employers and health insurers.
Politico:
- Fallout: Dems in disarray over AIG. Congressional Democrats careened between the circular firing squad and the three-ring circus Tuesday as they struggled with their new reality: playing defense on the economy. Sen. Robert Menendez (D-N.J.) blamed Treasury Secretary Timothy Geithner for letting bailed-out insurance giant American International Group pay $165 million in bonuses to its employees, saying he wrote a letter to Geithner two weeks ago warning him of just such a possibility. Sen. Chris Dodd (D-Conn.), tagged by Republican aides for sponsoring an amendment to the stimulus bill that allowed the bonuses, shifted the blame to the Treasury Department and “the bill conferees,” saying he had no idea that the AIG bonuses were coming. Sen. Max Baucus (D-Mont.), joined by Sen. Chuck Grassley (R-Iowa), introduced a bill that would impose a 70 percent tax on “excessive” compensation paid to employees of all bailed-out companies.
The Daily Beast:
- Did former AIG CEO Martin Sullivan quietly engineer AIG's outrageous bonus structure? Allan Dodds Frank says we're blaming the wrong guys—and Hank Greenberg is fuming.
Charlotteobserver.com:
- Bank of America Corp.(BAC) could pay back its $45 billion in government capital by late this year or early next year depending on the economy, chief executive Ken Lewis said in an interview today with the Observer. The Charlotte-based bank may also pay back the government's money piecemeal, Lewis said. The Charlotte-based bank could actually pay back the money now if it weren't maintaining higher-than-normal capital cushions because of the “fragile” state of the financial system, he said. Lewis, CEO since 2001, also told the Observer that he expects his bank to be profitable this year “absent some unexpected meltdown” and to pass the government's stress test. “If I look out over an intermediate timeframe such as the next three to five years or a longer timeframe of five to 10 years, I think Merrill will prove to be one of the best acquisitions we've ever made.” “This will be an interesting time because I think over the next six months there will be enough signs to show we're getting close to the bottom so people will have to make that decision as to whether they will invest in the business or invest in the stock market,” he said.
AP:
- President Barack Obama's computer chief is being reinstated from a leave he was put on after an FBI raid at his old job. At the same time, the White House is labeling as a "youthful indiscretion" a misdemeanor theft the man committed 13 years ago. White House spokesman Nick Shapiro late Tuesday announced the reinstatement of Vivek Kundra as White House chief information officer in charge of federal computer purchasing. Shapiro also said Kundra had done community service for the 1996 theft and the White House was satisfied that he had fully resolved the matter. Kundra was put on leave March 12 after the FBI raided the District of Columbia technology office that he headed until recently. Two people arrested on corruption charges.
- The Obama administration plans to send reinforcements to the Southwest border to help contain the rampant violence of the Mexican drug cartel wars. Thirty-seven agents from the Bureau of Alcohol, Tobacco and Firearms are being deployed to the region. An official familiar with the plan said the Immigration and Customs Enforcement Agency is considering reassignment of at least 90 officers to the border.
Reuters:
- American International Group(AIG) funneled over $90 billion of taxpayer bailout funds to various U.S. and European banks, but the biggest beneficiary was politically connected Goldman Sachs Group Inc (GS). Suspicions of potential conflicts of interest and favoritism have been fueled by $12.9 billion AIG paid to Goldman Sachs -- where then-Treasury Secretary Henry Paulson had previously worked as chief executive -- in the months after the insurer was rescued by the government last September. Asked why Goldman Sachs took $12.9 billion of taxpayer money if it was collateralized and hedged on its AIG positions, DuVally said it was because AIG was not allowed to fail, so Goldman did not get money from hedges that would have paid out if the insurer had collapsed. And, he said, under the terms of its contracts with AIG, Goldman was entitled to collateral. The payments to counterparties like Goldman Sachs dwarfed the bonuses, and some experts contend that these companies should have been made to share some of the losses resulting from the giant insurance firm's near collapse. "People see that the guys that ruined AIG are getting paid more money, and that creates outrage," said Porter Stansberry, managing director of Stansberry & Associates Investment Research. "If you want to be outraged, be outraged that the counterparties got paid out full value." The bailout has stirred resentment not just in the U.S. Congress, but on Wall Street, where investors have speculated that Goldman and its connections helped it get a better deal. In recent years, many former Goldman executives have moved into government. Paulson left Goldman in 2006 as chief executive. The chairman of the New York Federal Reserve is former Goldman Chairman Steve Friedman.
Financial Times:
US proposals to ease controversial fair value accounting rules could alter practices around the world after the international accounting standard setter said it would also discuss the changes. The US Financial Accounting Standards Board was poised on Tuesday to publish two staff papers that would allow banks and other companies more freedom in how they value financial assets. More securities would be valued by computer models rather than current market prices and many are expected to go up in value. A rule change could come into effect as early as next month. The International Accounting Standards Board agreed on Tuesday to put out the papers for comment by those who follow its rules – a list of more than 100 countries. “I’ve been wondering for about two years why they haven’t done it already ... to me it seems to be the simplest, fastest, cheapest way to deal with the heart of the problem which is the negative feedback loop between the economy and marking asset values in illiquid markets,” said Ed Yardeni of Yardeni Research. “Mark to market implies that there is a market that provides accurate information, but that assumption clearly fell apart even in early 2007.”
- Tim Geithner, America’s beleaguered Treasury secretary, faces a critical test of his credibility when he unveils a much-awaited plan to take toxic assets off bank balance sheets – in an announcement expected in the coming days. Mr Geithner, whose initial announcement last month on the troubled asset purchase plan disappointed the market, has become the target of criticism in Washington and on Wall Street, with some questioning whether he can deliver. Speaking on condition of anonymity, senior Democratic figures questioned whether Mr Geithner has the credibility with the markets and Capitol Hill to push through a new request for funds. “The more time passes, the more convinced I am that Tim Geithner is becoming a liability for the administration,” said one Democratic lawmaker.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (LLY) to Buy, target $41.
Thomas Weisel:
- Upgraded (LEAP) to Overweight.
Night Trading
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
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Who’s Speaking? Upgrades/Downgrades Rasmussen Business/Economy Polling
Earnings of Note
Company/EPS Estimate
- (NKE)/.79
- (MLHR)/.21
- (CTAS)/.48
- (IHS)/.54
- (ORCL)/.32
Economic Releases
8:30 am EST
- The Consumer Price Index for February is estimated to rise .3% versus a .3% gain in January.
- The CPI Ex Food & Energy for February is estimated to rise .1% versus a .2% gain in January.
- The Current Account Balance for 4Q is estimated at -$137.1B versus -$174.1B in 3 Q.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,500,000 barrels versus a +749,000 barrel gain the prior week. Gasoline supplies are expected to fall by -1,500,000 barrels versus a -2,993,000 barrel decrease the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +2,108,000 barrel rise the prior week. Finally, Refinery Utilization is expected to fall by -.10% versus a -.43% decline the prior week.
2:15 pm EST
- The FOMC is expected to leave the benchmark fed funds rate unch. at .25%.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and automaker stocks in the region. I expect US
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