Tuesday, May 26, 2009

Today's Headlines

Bloomberg:

- U.S. stocks rallied, sending the Standard & Poor’s 500 Index higher for the first time in five days, as the biggest jump in consumer confidence since 2003 spurred optimism the worst of the recession is over. Home Depot Inc., Macy’s Inc. and Advanced Micro Devices Inc. climbed at least 3.9 percent after the Conference Board’s index of sentiment surged to 54.9, the highest since September. Apple Inc. gained 5.9 percent after being upgraded to “overweight” at Morgan Stanley, which said analysts are underestimating demand for iPhones. “Consumer confidence was materially better,” said David Sowerby, who helps oversee about $100 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. “That allows the market to fight through an expected pause after a rally from March lows.”

- The cost to protect against a default on North American corporate debt dropped as a gauge of consumer confidence climbed the most in more than six years, bolstering speculation that the economy has bottomed. Credit swaps on the Markit CDX North America Investment- Grade Index Series 12, linked to the bonds of 125 companies in the U.S. and Canada, fell 4 basis points to 143 basis points as of 11:57 a.m. in New York, according to prices from broker Phoenix Partners Group and CMA DataVision.

- Hedge funds are making their biggest bet in nine months that commodity prices will rise as the global economy rebounds. An index of the net long position in US commodity futures, or bets prices will rise, held by hedge funds and other large speculators has risen to its highest since August.

- By almost any measure, credit markets have recovered most of the losses caused by September’s collapse of Lehman Brothers Holdings Inc. Not U.S. stocks. The Standard & Poor’s 500 Index, while up 31 percent from its lows, must rise 41 percent to reach its last closing price before Sept. 15, when Lehman filed for the biggest bankruptcy in history, freezing financial markets. Since then, 10-year Treasury notes have climbed 4.6 percent and investment-grade company bonds, which fell as much as 14 percent, are down 1.2 percent, Merrill Lynch & Co. bond indexes as of last week show. The disparity shows that while the U.S. government succeeded in calming markets, stock investors aren’t convinced that the economy and profits will grow fast enough to sustain a bigger advance. Investors are paying the lowest prices on record for equities compared with corporate bonds, based on the earnings yield on the S&P 500. Earnings yield, calculated by dividing the total profit of companies in the S&P 500 by the index’s price, equaled 8.2 percent last week, based on analysts’ earnings estimates for next year. That exceeded yields on U.S. investment-grade bonds by 1.36 percentage points, the widest margin on record when compared with historic profits, monthly data compiled by Bloomberg and Merrill Lynch show.

- James Parsons, portfolio manager at BlueCrest Capital Management Ltd., a London-based hedge fund managing about $12 billion, said this year’s rally in commodity prices had been overdone. “Too much hope is put on China. It’s an unrealistic expectation despite the size of the Chinese economy. Ultimately it’s a producing nation, an exporting nation, very much the model of many Asian economies. Products have been made for consumption in the West. A significant amount of the demand has been based on borrowed money so that imbalance has to be addressed,” he said. “The stimulus that China’s put in place is very impressive and in the short term it’s been a very good boost to confidence, but it’s very difficult to see how that alone can solve the problem.”

- Facebook Inc., the world’s largest social-networking service, said it received a $200 million investment from Russia’s Digital Sky Technologies, valuing the company at $10 billion. Digital Sky, which has offices in Moscow and London, will get a 1.96 percent stake in the company through preferred stock, Palo Alto, California-based Facebook said today in a statement.

- The California Supreme Court upheld a measure approved by voters in November that outlawed same-sex weddings, now legal in four other U.S. states. The court legalized gay marriage a year ago before California voters overruled it. Fifty-two percent of them approved the ban, called Proposition 8, on Nov. 4, amending the state constitution to recognize only marriages between a man and a woman.

- The slump in the U.S. housing market that caused the median value of homes to decline 24 percent since 2006 may bottom next month without any prospect of a rebound for another year, according to estimates from chief economists at Fannie Mae and Freddie Mac, the Mortgage Bankers Association and national realtors and homebuilder groups. Existing home sales probably won’t reach pre-boom levels until the third quarter of 2010 and housing starts won’t surpass 1 million until 2011, a barrier last broken six decades ago, the economists said. “There are very few V-shaped recoveries in the history of real estate, and this one is likely to be even slower because of the size of the bubble,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s.

- After oil passed $60 a barrel for the first time in six months, the New York Mercantile Exchange’s fastest-growing options trade in July is for a 18 percent drop. The number of options to sell oil at $50 a barrel for July settlement rose 22 percent last week to 24,948. Traders expect prices to fall because U.S. crude inventories are 1.8 percent below the highest level in two decades, the International Energy Agency says demand is falling the most since 1981, and there’s enough unsold crude stored in offshore tankers to supply the U.S. for a week. Oil traded as high as $62.16 today in New York. “Oil prices are rising way ahead of reality, way ahead of fundamentals,” said Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt. “It would be more reasonable for prices to drop a little and correct to $50 or below.”

- Apple Inc.’s(AAPL) success with the iPhone will fuel profit growth for the next two years, topping analysts’ estimates, Morgan Stanley said as it raised the company’s rating to “overweight.” The market is “underestimating iPhone unit demand,” analyst Kathryn Huberty wrote today in a report to clients.

- Raw-material producers are likely to lose their place as the US stock market’s top performers this year, according to Brian G. Belski, Oppenheimer’s chief investment strategist. “There is now a stark deviation” between the industry’s share performance and pricing of metals, chemicals and other industrial commodities, Belski wrote today.

- The U.S. may accept targets for reducing its greenhouse gases in an international treaty even if China doesn’t, Energy Secretary Steven Chu said. Initiative by the U.S. may be necessary because the two countries need to move beyond their “standoff,” Chu told reporters today in London. China and the U.S., the largest emitters of climate-warming gases, have been at loggerheads over what actions each should take under a new treaty to fight global warming that the United Nations aims to broker in December in Copenhagen. “Using China as a reason not to act is no longer what we want to go forward with,” Chu said at a meeting on climate change organized by the University of Cambridge that drew 20 Nobel Prize winners. “If the United States does act, one hopes that in several years China will follow.” Developing nations are demanding that industrialized countries cut emissions by 40 percent from 1990 levels by 2020 to stave off dangerous rises in temperature. The U.S., concerned it would lose competitiveness, rejected the current accord, the Kyoto Protocol, because it set no goals for emerging economies.


Wall Street Journal:

- The new commissioner of the Food and Drug Administration is among the wealthiest Obama administration appointees, with income of at least $10 million in 2008 thanks mostly to her husband, a hedge-fund executive, according to financial disclosure forms. Margaret Hamburg and her husband, Peter Fitzhugh Brown, must divest themselves of several hedge-fund holdings as well as some of Mr. Brown's inherited drug-company stocks so Dr. Hamburg can take the post as the nation's top food and drug regulator. Mr. Brown is a lieutenant to hedge-fund magnate James Simons. She was confirmed by the Senate last week.

- The hedge fund industry is readying to launch a series of initiatives aimed at watering down European Union proposals to regulate the sector, the U.K. trade body said Tuesday.

- North Korea's test of a second nuclear device Monday didn't surprise readers who saw John Bolton's recent prediction on these pages. But it does once again put in sharp relief the world's failure to counter dictator Kim Jong Il's challenge to global security. If history is any guide, Kim's strategy is to keep escalating until he extorts more money, aid and global recognition. This time in particular he's testing President Obama and his vow to "engage" the world's rogues.


NY Times:

- PRESIDENT OBAMA has called for a world without nuclear weapons, not as a distant goal, but as something imminently achievable. Secretary of State Hillary Clinton followed up, saying that American and Russian “leadership” in arms control and nonproliferation was “at the top of the list” of her priorities. Although the administration may be counting on the eyelid-lowering effect of arms-control terminology to minimize Congressional and public scrutiny, its plans are deeply troubling for America. First, the administration’s bilateral objectives with Russia play almost entirely to Moscow’s advantage, as in arms-control days of yore. Hurrying to negotiate a successor to the second Strategic Arms Reduction Treaty by year’s end, which Secretary Clinton has committed to, reflects a “zeal for the deal” approach that benefits only Russia.

- State and local governments are asking Washington to give them something that banks are trying to get rid of: federal bailout money. California is asking that money from the Treasury’s TARP, the Troubled Asset Relief Program, be used to help back more than $13 billion in short-term borrowings. Members of Congress and several municipalities want bailout money to be used to cover more than $1 billion in losses from investments by municipalities in debt issued by Lehman Brothers, the investment bank that went bust. And Representative Barney Frank, chairman of the House Financial Services Committee, is drafting legislation that would have the Federal Reserve, and potentially the Treasury’s bailout money as well, stand behind floating-rate municipal bonds — a $400 billion market that provides short-term financing to municipalities, but which has been largely frozen in the current credit crisis. Another measure drafted by Mr. Frank, Democrat of Massachusetts, would create a public finance office within the Treasury Department to reinsure $50 billion in municipal bonds.

- Warner Music(WMG) Is Singing Again.

- General Motors will give the United Auto Workers union 17.5 percent of its common stock, $6.5 billion in preferred shares and a $2.5 billion note to fund a trust that will take over retiree health care costs starting next year. The funding for the trust was outlined in a summary of concessions that the company and union have agreed to as G.M. tries to restructure outside of bankruptcy.

MarketWatch:
- Bullishness in the gold arena is at a three-month high. There is sufficiently high bullish sentiment to cause contrarians to be concerned.

Rasmussen Reports:

- The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 31% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty percent (30%) Strongly Disapprove giving Obama a Presidential Approval Index rating of +1. That’s the lowest positive rating yet received by the new President (see trends).


Politico:

- President Barack Obama called Judge Sonia Sotomayor at 9 p.m. on Memorial Day to say she was his pick for the Supreme Court. Obama showed he was willing to pick a fight with his choice — Republicans do not consider her a “consensus” choice and had telegraphed that they considered her the most liberal of the four finalists. He played smart base politics with the historic choice of a Hispanic (a first) and a woman.


Miami Herald:

- Hotels continued cutting rates through the spring, but South Florida's tourism slump may be stabilizing, according to new statistics. In April, room rates fell 12 percent to $155 a night in Miami-Dade, according to Smith Travel Research. That was the smallest rate decline since January, as the worst tourism market since 2001 began taking hold of South Florida's largest industry. While the numbers remain dismal -- revenue per room plunged about 22 percent last month in both Broward and Miami-Dade -- they did not get worse in April. That adds to evidence that the swift economic downturn that hit the United States in the fall is touching bottom -- at least for now.

- The pool of money available to compensate victims of Bernard Madoff's massive Ponzi scheme is getting bigger. A Swiss hedge fund affiliated with Spain's largest bank has agreed to return $235 million that it withdrew from its accounts with Madoff before the scheme collapsed. The payment will swell the amount available to Madoff victims to more than $1.2 billion.


Reuters:
- China's State Reserves Bureau (SRB) has quietly over the past month sold off a small volume of its contracted copper imports and might sell up to 50,000 tons, temporarily reversing course after months of buying, industry sources who were offered SRB copper said on Tuesday.

- General Motors Corp has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy by the end of this month. The largest U.S. automaker had so far failed to gain anywhere near the 90 percent of bondholder support desired to stave off bankruptcy, two sources familiar with the discussions told Reuters on Tuesday. Bondholders have until midnight to make their final decision on the tender. As of midday Tuesday, the source said the company had only "low-single-digit" interest from bondholders. Reuters' sources said GM will likely file for bankruptcy some time after midnight Tuesday, but before June 1.

- Apple's iTunes online music store may reach more customers throughout Europe after the body tasked with collecting artist royalties in France agreed to allow counterparts elsewhere to license its catalog. SACEM, which collects royalties for about 128,000 artists, said it would be willing to drop territorial restrictions and allow national counterparts to license its repertoire, European antitrust regulators said on Tuesday.

- General Electric Co's(GE) growth will be "harder to come by" in coming years given the prospect the global economy may grow at a slower pace once it emerges from recession, the company's chief executive said. Jeff Immelt said he would look to shift more of GE's resources to China and other emerging markets set to play a larger role in driving economic growth as tighter credit forces the U.S. consumer to rein in spending.

Financial Times:
- Speculative bets against the dollar have risen to their highest level since the onset of the financial crisis. Positioning data from the Chicago Mercantile Exchange, often used as a proxy for hedge fund activity, showed that in the week ending May 19, bets against the dollar – short positions – versus the euro exceeded bets on dollar strength by 12,250 contracts. This net short position was the highest level since the week of July 15, when the dollar hit a record low of $1.6038 against the euro. Meanwhile, the net short position on the dollar versus the yen rose to 6,000 contracts, the highest since March. Analysts said the fact that net long positions in the Australian dollar also hit their highest level since July reflected the extent of deepening anti-US dollar sentiment among the speculative community.

Edaily:

- South Korea may cut its forecast for this year’s economic growth, citing presidential spokesman Lee Dong Kwan.


Iranian Press TV:
- Mir Hossein Mousavi leads incumbent Iranian President Mahmoud Ahmadinejad in a poll in major cities in advance of the country’s June 12 presidential election. Mousavi, a former prime minister, is ahead of Ahmadinejad by 4 percentage points in the 10 cities, with about 38% saying they will vote for him, against Ahmadinejad’s 34%, citing a report by Ayandeh News. In a separate poll conducted last week by state broadcaster IRIB, Mousavi also led in Tehran, with 47% of the capital’s vote, while Ahmadinejad followed with 43%.

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