Late-Night Headlines
Bloomberg:
- Yields on Fannie Mae and Freddie Mac mortgage securities declined to the lowest in more than three weeks, signaling that interest rates on new home loans will fall and ease the U.S. housing slump. Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds tumbled 0.18 percentage point to 4.53 percent as of 3:53 p.m. in New York, the lowest since June 3, amid a plunge in rates on benchmark Treasuries, according to data compiled by Bloomberg. Treasuries rallied as the government sold $27 billion of seven-year securities in the last of three auctions this week that totaled a record $104 billion, dragging yields on so-called agency mortgage securities lower.
- A 66% gain in prices for the lowest-ranked loans since March 10 has reduced the chance that collateralized loan obligations will suffer from event of defaults, according to Morgan Stanley analysts. Over the past two months there has been a “substantial rally” in CLOs, a type of collateralized debt obligation that pool high-yield, high-risk, or junk, loans and slice them into securities of varying risk and return, analysts led b y Vishwanath Tirupattur wrote. CLOs have gained in value after the underlying collateral rose, the analysts said. Since March 10, the S&P/LSTA US Leveraged Loan 100 index, has risen 16.7 cents to 78.7 cent on the dollar. Loans ranked CCC, the eighth-highest junk rating by S&P, gained 24.4 cents to 61 cents, according to Morgan Stanley. Event-of-default “fears have significantly faded in light of the CCC loan rally,” they wrote. The increased value of leveraged loans means the top-ranked portions of CLOs are well covered if the portfolio was liquidated, the analysts said. Pieces graded A, S&P’s sixth-highest rating, now have a reasonable prospect of some principal return, the report said.
- Palm Inc.(PALM), maker of the new Pre phone, reported a smaller-than-anticipated loss after selling more of its older models than predicted. The shares climbed 15 percent in late trading.
- North Korea threatened an “all-out war” against the U.S. as Kim Jong Il’s regime ratcheted up its anti-American rhetoric to mark the 59th anniversary of the start of the Korean War. More than 100,000 people rallied in Pyongyang today, state- run Korean Central News Agency said. Images on APTN television in North Korea showed thousands shouting “Let’s smash,” as a sign showed hands crushing a missile on which “U.S.” was written, the Associated Press reported. KCNA periodically attacks the U.S., South Korea and longtime enemy Japan in its daily English-language dispatches. Today, KCNA criticized U.S. “imperialists” in at least eight news releases. The reports have become more bellicose since June 12, when the United Nations Security Council imposed sanctions on North Korea after it conducted a long-range missile test. North Korea will counter those sanctions with retaliation and “all-out war with all-out war in order to protect the dignity of the nation and the sovereignty of the country,” KCNA quoted Pak Pyong Jong, first vice chairman of the Pyongyang City People’s Committee, as saying at the rally. “If the U.S. imperialists and the south Korean puppets finally take the road of an adventurous war, while going reckless, the army and people of the DPRK will deal retaliatory blows thousand times stronger than what they faced 59 years ago and wipe out the aggressors to the last man,” the Rodong Sinmun newspaper wrote. North Korea’s anti-U.S. rhetoric is on the rise as the country may be preparing to fire a long-range ballistic missile toward Hawaii, Japan’s Yomiuri newspaper reported this month. The U.S. Navy is tracking a North Korean ship, Kang Nam I, which it suspects may be carrying illicit weapons technology. The 2,000-ton cargo vessel left the port of Nampo in North Korea on June 17 and may be headed to Myanmar via Singapore, South Korea’s YTN cable news channel reported. North Korea is also holding two American journalists, Euna Lee and Laura Ling, whom it accused of illegally entering the country from China in March while reporting for San Francisco- based Current TV. They were sentenced to 12 years of hard labor on June 8.
- Ahmad Hamad Algosaibi & Brothers Co., the Saudi family holding company whose Bahraini bank has defaulted, owes 34.6 billion Saudi riyals ($9.2 billion) to more than 100 banks, two people familiar with the situation said.
- General Motors Corp., planning for its future after leaving bankruptcy, has decided to assemble a future small-car model at its plant in Orion Township, Michigan, two people familiar with the decision said. The automaker, based in Detroit, chose the location because the state offered the biggest tax incentives and abatements, said the people, who asked not to be identified because the decision hasn’t been announced. GM had said it would decide this month from among its plants in Orion Township, Spring Hill, Tennessee, and Janesville, Wisconsin. Michigan offered a package of tax incentives for all of GM’s assembly plants in the state as long as the company maintains a certain level of employment, two people familiar with the matter said. The future small car is essential to GM’s plans to make its products more fuel efficient to comply with more stringent fuel economy rules and please consumers dealing with more volatile fuel prices. GM had planned to import its small car from China, according to documents it provided to Congress earlier this year, saying it couldn’t profitably manufacture the vehicle in the U.S.
- UBS AG(UBS), the European bank with the biggest credit-crisis losses, raised about 3.8 billion Swiss francs ($3.5 billion) by selling shares to boost capital and said it expects a second-quarter loss.
- Japan’s consumer prices fell at a record pace in May, adding to signs that a return to deflation may hamper a rebound from the nation’s worst postwar recession. Consumer prices excluding fresh food declined 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since the survey began in 1971. Bank of Japan Governor Masaaki Shirakawa said last week that price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil continues to trade lower than last year’s record.
- Imports of coal to China, the world’s biggest consumer of the fuel, won’t return to last month’s record until at least mid-2010 as gains in shipping costs make domestic mine output more cost effective, according to Australia & New Zealand Banking Group Ltd. Chinese buyers have taken advantage of a drop in spot prices this year to build stockpiles, preferring cheaper imports to more expensive local coal. The 96% jump in freight costs in May has negated that advantage. “Chinese coal production seems to be cranking back up and underlying demand is not that strong” if you look at decelerating growth in power demand, said Mark Pervan, a commodity strategist at ANZ in Melbourne. “Something has to give and in this case it’s higher-priced imports. You won’t see these import levels again for another 12 to 18 months. This window has closed for now.”
- Emerging-market stock funds lost $1.87 billion in the week ended June 24, the first week of net outflows since early March, on concern that a rebound in exports will be delayed, EPFR Global said. Investors withdrew $660 million from funds investing in Asia excluding Japan and pulled $457 million from Latin American equity funds, the research firm said in a statement yesterday. The reversal “was most pronounced among Asia ex-Japan and Latin America Equity Funds,” EPFR said. “Investors questioned where and when demand for their manufactured and commodity exports will pick up.” China funds lost $262 million, the biggest weekly outflow since the first week of March, while those investing in the Greater China region posted net outflows of $175 million, the statement said.
Wall Street Journal:
- The U.S. Treasury Department is negotiating with more than a dozen state attorneys general to roll back two key features of General Motors Corp.'s bankruptcy plan that would have wiped out billions of dollars in potential claims from car-accident victims and closed auto dealers. The discussions show how the federal government's GM rescue is brushing up against the limits of its ambitious legal approach, which attempted to use the Bankruptcy Code to override many state legal contracts and protections. This could ultimately expand the cost of GM's $60 billion bailout, though government officials say it shouldn't delay the emergence of a "new GM" from bankruptcy protection.
- Lear Corp. (LEA), a maker of automotive seats and interior electronics, is working on a pre-packaged bankruptcy five days before it must make a $38 million interest payment on two of its bonds, according to several people. If the prepackaged bankruptcy deal falls apart, Lear could file for a traditional-style bankruptcy next week, people familiar with the situation said.
- J.P. Morgan Chase & Co.(JPM), which sold a $1.525 billion credit card loan-backed deal Monday, reopened and upsized the deal to $1.825 billion Thursday, according to a person familiar with the matter. The deal, dubbed CHAIT 09-A5, had already been increased in size from an initially planned $1 billion.
- Michael Jackson was pronounced dead at a hospital Thursday after suffering cardiac arrest at his Los Angeles home, marking a sad end to the life of a man who had been a global pop icon since childhood.
- California's median price for an existing single-family house rose for the third straight month, a sign that the state's battered real-estate market may be bottoming out. The median sales price increased to $267,570 in May for a California home, an increase of 4.2% from April, according to a report released Thursday by the California Association of Realtors. The inventory of unsold houses continued to drop, to 4.2 months' supply in May compared with 4.6 months in April and 8.7 months in May 2008. The Realtors' report also said that 556,590 California houses were sold in May, up 35.2% from a year earlier. Sales may increase in coming months because prospective buyers believe the market is at a bottom, said Robert Bridges, a professor at the University of Southern California's Marshall School of Business. "The 'buy' decision would be a wise one right now because those pricing levels are getting attractive," he said.
MarketWatch.com: Long a pioneer in wireless telecommunications technology, Qualcomm Inc.(QCOM) is looking to expand its business beyond cell phones into a new category of portable computing devices -- potentially setting the company up for a rivalry with Intel Corp
NY Times:
- ABC’s “Primetime” special on Wednesday, featuring a town hall discussion about health care with President Obama, attracted just 4.7 million viewers, according to Nielsen’s estimates. It ranked third in its 10 p.m. time slot behind CBS’s rerun of “CSI: NY” and NBC’s debut of “The Philanthropist”; each drew 7.4 million viewers. ABC finished fourth for the night over all, garnering 7.7 million at 8 for “Wipeout” and 4.2 million at 9 for “I Survived a Japanese Game Show.” Fox eked out a No. 1 finish, ahead of NBC, with “So You Think You Can Dance” from 8 to 10 (7.5 million). NBC’s reality competition “America’s Got Talent” had the night’s best ratings with 10.4 million viewers. CBS was third with a lineup of reruns.
- The country’s projected debt is growing so quickly that it would exceed the size of the economy in 2023, the nonpartisan Congressional Budget Office reported in its latest long-run economic outlook on Monday. That is seven years earlier than the office forecast in its previous such report 18 months ago. The latest picture of the nation’s fiscal condition to 2080 is a mixed bag for the president just as he and Congressional Democrats are trying to find $1 trillion in savings over 10 years to cover the upfront costs of overhauling the health care system. “Debt soars because of unrelenting growth in federal spending on health care programs and a rise in Social Security spending” as a share of the economy, the report said. Up to 90 percent of the increase is due to Medicare and Medicaid spending rather than Social Security, it added. Senator Kent Conrad, a Democrat from North Dakota who is chairman of the Senate Budget Committee, released a statement saying that the budget office report “reinforces the importance of not only paying for health reform, but ensuring that it significantly bends the cost curve on health care beyond the next ten years. We simply must get these health costs under control.”
Business Week: Goldman(GS) Profits from the Downturn. For Goldman Sachs, a slow recovery and dysfunctional bank bailout programs mean bigger profits. For a sense of how sweet life is at Goldman, imagine you own the sole lumber yard that stayed dry in a town hit by a 100-year flood. Now as customers line up with fistfuls of money from relief programs, you can set prices at will. That's essentially Goldman's situation. Because it saw the subprime crisis coming and bet on the housing bust, it has emerged from the wreckage as arguably the strongest bond dealer in the world. It can mark up the prices on its inventory of bonds with impunity. Now Goldman is in the unusual position of benefiting from a slow recovery. A plodding economy will keep competitors weak and allow Goldman to book big bond-trading profits. For that reason it's better for Goldman if the U.S. rescue programs don't work and rivals remain hampered by bad assets, says analyst Roger A. Freeman of Barclays Capital (BCS). After all, zombie banks aren't much of a threat.
- How making primary-care physicians the center of America's health-care system could drive down costs.
- Amazon.com's(AMZN) buying and hiring signal that many more Kindle apps may be on the way—plus software to put Amazon books on other mobile devices.
CNNMoney.com:
- The recent spike in gasoline prices comes at a particularly unfortunate time -- many Americans are still reeling from the economic downturn. Here is how some people have responded to the return of pain at the pump.
Forbes:
- Middle East news giant Al Jazeera has gained its first big foothold in the U.S. TV market. Now it has to overcome perceptions of bias.
Politico:
- Democratic leaders are working furiously to corral votes for a controversial climate change measure, hoping to build a big enough margin so that vulnerable Democrats can be freed to vote against it. At the White House on Thursday, President Barack Obama declared: “Now is the time to act.” Former Vice President Al Gore, who had planned to rally Democrats en masse in Washington, stayed home in Tennessee so he could press members one by one via telephone. House Speaker Nancy Pelosi plied undecided members with chocolate-covered Dove bars in a series of small group meetings. White House chief of staff Rahm Emanuel worked the phones, and administration officials were expected to whip members at a White House luau Thursday night. By late Thursday, aides and lawmakers said Democrats were within a dozen of the 218 votes needed to pass the legislation. Democratic sources said their leaders aimed to lock in 230 yes votes — and leaning on key Blue Dogs such as Reps. Earl Pomeroy of North Dakota and South Dakota’s Stephanie Herseth Sandlin so that more vulnerable members such as Reps. Eric Massa of New York and Maryland’s Frank Kratovil can vote no. Asked if she was confident of prevailing, Rep. Diana DeGette (D-Colo.), the chief deputy whip, said: “I’m not confident about anything. “Everyone is concerned that their region is going to get hit harder than others,” said Michigan Democrat Bart Stupak. “We still have a long ways to go with this bill.” Republican Whip Eric Cantor (R-Va.) and his team are working hard to hold as many moderates as possible in order to force more centrist Democrats to back the legislation. Those efforts focused on some of the same members being targeted by Democrats, like Castle and Kirk, but also other lawmakers from environmentally friendly corners of the country, such as Wisconsin Rep. Tom Petri. And on Thursday, House Minority Leader John Boehner (R-Ohio) threw down the gauntlet. “Mark my words,” he said. “The American people are going to remember this vote. This will be a defining moment and a defining vote in this Congress.”
Reuters:
- A bipartisan panel armed with subpoena power to investigate causes of the Wall Street meltdown is on the brink of being launched, as Congress embarks on an ambitious effort to reform policing of the financial sector. A short list of names has emerged for the Financial Crisis Inquiry Commission that includes former Republican presidential candidate Fred Thompson; former Democratic head of the Commodities Futures Trading Commission Brooksley Born; and Alex Pollock, a fellow at the conservative think tank American Enterprise Institute, according to a source familiar with the matter. Congress last month created the 10-member commission to study how fraud, regulatory lapses, monetary policy, accounting, lending practices and executive pay contributed to the worst U.S. financial crisis since the Great Depression.
- Boeing Co (BA), the world's No.2 plane-maker, suffered another heavy blow to its Dreamliner project on Friday when a major customer, Australia's Qantas Airways, scrapped and deferred orders for 30 new planes. Aviation analysts warned that more Boeing customers could follow Qantas, noting that cancellations of the fuel-efficient, long-haul plane were gaining momentum as airlines worldwide looked to conserve capital during the global recession.
Financial Times:
- Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures. In a report to be published on Friday, written jointly with the United Nations Environment Program, the WTO said it was possible to implement border measures for environmental reasons under its rules. “Rules permit, under certain conditions, the use of border tax adjustments on imported and exported products,” said the WTO. “The objective of a border tax adjustment is to level the playing field between taxed domestic industries and untaxed foreign competition by ensuring that internal taxes on products are trade neutral.” Some US businesses and politicians argue that to put a price on carbon could put domestic companies at a disadvantage compared with cheaper imports from places with no – or more lax – rules. One possible way of preventing this would be to impose tariffs on imports from states without robust carbon regimes. Melissa Carey, of the Environmental Defense Fund campaign group in the US, said: “There is certainly a constituency here that says the cap-and-trade bill can and should contain means to give us some recourse if major developing nations do not take on emissions targets.”
TimesOnline:
- Anemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned. A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay. According to the think-tank, those loans were made on the assumption that the traditional staples of Japanese corporate life — seniority-based pay increases, constantly rising bonuses and lifetime employment — would remain as fixtures.
Globe and Mail:
- Potash Corp. of Saskatchewan (POT) has slashed its profit outlook for the second quarter, citing lower-than-projected sales. Potash, one of the companies that drove the Toronto Stock Exchange to new heights last year before the meltdown, initially expected second-quarter profit of $1.10 (U.S.) to $1.50 a share. On Thursday, the company cut that projection to just 70 cents.“The change reflects substantially lower than forecast potash sales volumes due to deferral of purchases by customers around the world and lower realized prices for phosphate fertilizers,” the company said in a statement. Potash spokesman Bill Johnson said sales so far this year have been softer than initially forecast. “Pricing has remained relatively firm, but the volumes have been certainly lower than forecast,” he said. A year ago, Mr. Johnson said, retailers had built up significant inventories of fertilizers. Now, he added, “they have been selling their inventory and not replacing it as quickly as they traditionally have.” Wholesale prices for potash have slumped about 30 per cent since peaking near $1,000 last year. But retail prices fell only about 13 per cent. And retailers had stocked up as prices climbed.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (LEN), target $12.
Night Trading
Asia Ex-Japan Inv Grade CDS Index -.85%.
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8:30 am EST
- Personal Income for May is estimated to rise .3% versus a .5% gain in April.
- Personal Spending for May is estimated to rise .3% versus a -.1% decline in April.
- The PCE Core for May is estimated to rise .1% versus a .3% increase in April.
10:00 am EST
- The Final Univ. of Mich.
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BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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