Late-Night Headlines
Bloomberg:
- The financial crisis is over and credit markets have healed, said Royal Bank of Canada President and Chief Executive Officer Gordon Nixon. “The financial crisis I think is over, if you define it as a crisis,” Nixon, 52, told reporters today at the International Economic Forum of the Americas/Conference of Montreal. “We are now returning to a much more normal environment.”
- China’s exports fell by a record as the global recession cut demand for goods produced by the world’s third-largest economy. Overseas sales dropped 26.4 percent in May from a year earlier, the customs bureau said in a statement on its Web site today. That compares with the median estimate for a decline of 23 percent in a Bloomberg News survey of 15 economists, and a 22.6 percent contraction in April.
- Comcast Corp.(CMCSA), the largest U.S. cable operator, will offer some television shows over the Internet to a test group of subscribers in the coming weeks, Chief Operating Officer Stephen Burke said. Comcast is teaming up with Time Warner Inc. on the feature, called OnDemand Online, Burke said in an interview. The cable operator plans to offer it to more customers by the end of the year, he said.
- The U.S. Treasury Department is considering issuing rules this summer to allow lenders to modify commercial real estate loans without triggering tax penalties on investors as the industry braces for an increase in defaults, a person familiar with the matter said. The Real Estate Roundtable, a Washington trade group, began in December to urge Treasury and the Internal Revenue Service to waive tax penalties that would otherwise be assessed on investor pools known as Real Estate Mortgage Investment Conduits and Real Estate Investment Trusts.
- House Republican staffers said Federal Reserve and Treasury officials overstepped their authority and pressured Bank of America Corp. to complete its Merrill Lynch & Co. purchase, in a memo obtained by Bloomberg. The memo prepared by the staffers for Republican lawmakers at a House Oversight Committee hearing tomorrow cites what it identifies as excerpts from internal Fed e-mails to support their stance. The committee issued a subpoena to the Fed yesterday for documents related to the transaction.
- BP Plc Chief Executive Officer Tony Hayward said demand for oil coming from the U.S. gasoline market “has probably peaked” as ethanol blending gains ground and Congress works on enforcing fuel efficiency. The U.S. has the potential to offset future higher energy demand with efficiency measures over the next 10 years, Hayward said at a presentation of BP’s Statistical Review of World Energy yesterday in London. At the same time, investment in more biofuel production and the possible end of ethanol import restrictions may lead to replacing petroleum in transport fuels. “We probably sold as much gasoline into the U.S. as we’ll ever sell” in the first half of last year, Hayward said. The U.S. “is not a growth market. Gasoline demand in the U.S. fell last year for the first time since 1991, according to the Energy Department in Washington. Motorists burned 8.964 million barrels of the fuel daily in 2008, 3.5 percent less than a year earlier, amid recession-driven job losses and wage cuts. The slump continued into 2009. World oil production may peak at some stage, driven by limited demand from consumers, Hayward said. Rising oil prices may encourage wider use of alternative sources of energy and biofuels production expansion to substitute crude. “The world has ample proven reserves” to “meet the world’s needs for decades to come,” Hayward said. “It will be a demand- side phenomenon, not a supply-side phenomenon,” which will limit global crude oil production. “Demand for fuel for transport in the U.S. has probably peaked” relating to hydrocarbons, he said. BP is targeting the U.S. ethanol market as it plans to invest between $5 billion and $6 billion to expand production of the biofuel in Brazil. In May, it has appealed to Californian regulators to set the first U.S. example by suspending state import tariffs on Brazilian ethanol. “We believe fundamentally in free and open energy markets and a tariff on imported ethanol is the tariff on the free energy markets,” Hayward said. “It would be a good thing” to cancel the Brazilian import restrictions, he said.
- Japan’s economy shrank less than the government initially estimated as business investment and inventories fell at a slower pace. Gross domestic product shrank at a record 14.2 percent annual pace in the three months ended March 31, less than the 15.2 percent reported last month, the Cabinet Office said today in Tokyo
- Petroleo Brasileiro SA(PBR) had its debt rating cut to the lowest investment grade level by Standard & Poor’s, which said Brazil’s state-controlled oil company may need partners to help finance its investment plan
Wall Street Journal:
- Dell Inc.(DELL) is cranking up its mergers and acquisitions engine, just as competition for technology deals begins heating up again. While Dell officials have publicly said they want to do more deals, they have given few specifics. But Chief Executive Michael Dell expects his company to acquire a "significant-sized company" in coming months, according to a person who has spoken with the CEO. The computer maker wants to expand its data-storage and tech-services businesses, according to people who have recently spoken with its chief financial officer, Brian Gladden.
- A canny trade by a small brokerage firm in two markets at the heart of the financial crisis has left some of the biggest players on Wall Street crying foul. The trade, by Amherst Holdings of Austin, Texas, was particularly galling to the big banks because it turned what they believed was a sure-fire profit into a loss. The burned banks include J.P. Morgan Chase & Co., Royal Bank of Scotland Group PLC and Bank of America Corp. Some banks have reached out to two industry trade groups about Amherst's actions, and the groups are reviewing the transaction, according to people familiar with their thinking. "It's all-out warfare" between the banks and Amherst, said a senior banker at one firm that lost money. At issue is a move by Amherst to boost the price of bonds to avoid paying out on credit-default swaps it had sold. Banks are questioning whether Amherst set them up by selling credit-default swaps and then rendering them worthless.
- Rising interest rates threaten to dim prospects for a housing recovery and choke off a refinance wave that was a major plank of the Obama administration's economic-stimulus efforts. On Wednesday, rates on 30-year fixed-rate mortgages climbed to 5.79%, up from 5% two weeks ago, according to HSH Associates. That jump will cut roughly in half the number of borrowers with an incentive to refinance, according to FTN Financial.
- Long-term mutual funds saw overall buying, or inflows, for the 12th straight week, as inflows into both stock and bond funds picked up from the previous two weeks, according to figures released from the Investment Company Institute. Total estimated inflows were $13.6 billion in the week ended June 3. Stock funds had estimated inflows of $4.63 billion, up from $1.59 billion the previous week.
- One at a time the government's top critics seemed to go to jail, or simply disappear. Syrgak Abdyldayev, a local journalist, began to investigate whether the attacks had anything to do with a team of Russian-speaking specialists who arrived last year to advise the Kyrgyz government. He published several scathing articles accusing the government of shunting aside its opponents and turning to Moscow for financial support, including one in February that likened Russian aid to "oxygen for a sinking submarine." Then Mr. Abdyldayev became a victim. Three men attacked him with metal pipes as he left his newspaper one evening in March, broke both his arms, his ribs and a leg, and stabbed him 26 times in the buttocks.
- The World Health Organization will hold an emergency meeting on Thursday as the H1N1 swine flu virus continues to spread around the globe, increasing the likelihood a pandemic will be declared.
MarketWatch.com: "If gasoline prices stay elevated, it will dramatically dilute the tax-cut portion of the Obama stimulus plan," said Boockvar, who calculates that for every $1 move in the price of gasoline, "it's an extra $140 billion more in consumer spending at the pump."
CNBC.com: The Federal Reserve lost $5.25 billion in the first quarter on the securities it acquired with last year's bailouts of Bear Stearns and insurer American International Group , according to a report issued Wednesday.
NY Times:
- Tough words from Washington arrived by phone on Tuesday at Citigroup headquarters in New York. On the line was Sheila C. Bair, the head of the Federal Deposit Insurance Corporation — and a powerful behind-the-scenes player at the giant bank. She was calling to press directors once again to put Citigroup’s troubled house in order. Ms. Bair urged the board to take swift action to purge Citigroup’s troubled assets, sell money-losing businesses and assess senior management.
- Strong buying by China has helped lift commodity prices around the world this spring, but growing evidence suggests that a sizable portion of this buying has been to build stockpiles in China, and may not be sustainable. At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak. Commodities and shipping executives describe Chinese stockpiling in recent months of a range of other commodities as well, including aluminum, copper, nickel, tin, zinc, canola and soybeans. Starting in April, China began stockpiling significant quantities of crude oil. “There has been enormous stockpiling of all commodities” by China, and this cannot continue indefinitely, said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a big shipping line based here. Moody’s Investors Service announced on Wednesday that it was putting a negative outlook on the base metals, mining and steel industries in Asia and the Pacific, having previously done so for these sectors elsewhere. One of the best leading indicators of international trade in commodities is the Baltic Exchange Dry Index, which measures the daily cost of chartering a large freighter. While the Standard & Poor’s GSCI has continued to rise in the last week, the freight index has fallen by a fifth in that period. Richard S. Elman, the chief executive of the Noble Group, Asia’s largest diversified commodities trading company, bounced up from the conference table in his office here when asked about freight rates during an interview on Tuesday morning. He walked over to his desk, dominated by three computer screens that partly obscure a perfect view of Hong Kong’s harbor, and quickly punched up on one screen a list of daily charter rates for large bulk carrier freighters. The list showed ship owners charging $58,000 a day now but just $24,000 a day for charters next year or in 2011 — an indication that there will be more ships than cargoes in the years ahead, particularly with shipyards still finishing vessels ordered during the recent boom. Pointing to the rates for the next two years, Mr. Elman said, “That’s the real market” for ships.
IBD:
- But many off-price chains and niche retailers have thus far held up well. Among them stands Citi Trends (CTRN), a Savannah-based discount chain that caters to urban shoppers in Atlanta, Charlotte and other cities in the southeastern U.S.
NY Post:
- Less than a month after being told by Donald Trump that she can keep her Miss California crown, Carrie Prejean is being fired, Foxnews.com has learned exclusively. K2 Productions, the independent producers of the Miss California USA pageant, under license from Miss Universe, cites continued breach of contract issues as the reason for Prejean's firing. The decision is revealed in documents obtained by FOXNews.com.
Politico:
- Alaska Gov. Sarah Palin took a second swipe at David Letterman on Wednesday, calling the CBS “Late Show” host’s jokes about one of her daughters “disgusting” and “sexually perverted.” In an e-mailed statement, the Republican governor said: “Laughter incited by sexually perverted comments made by a 62-year-old male celebrity aimed at a 14-year-old girl is not only disgusting, but it reminds us some Hollywood/N.Y. entertainers have a long way to go in understanding what the rest of America understands — that acceptance of inappropriate sexual comments about an underage girl, who could be anyone's daughter, contributes to the atrociously high rate of sexual exploitation of minors by older men who use and abuse others.”
- The White House has refused a request from Sen. Chuck Grassley for all the exemptions it’s granted to President Barack Obama’s ethics policy. And that’s got the Iowa Republican on a mission to make public every ethics waiver and recusal issued to administration officials. “The American people deserve a full accounting of all waivers ... to better understand who is running the government and whether the administration is adhering to its promise to be open, transparent and accountable,” Grassley wrote in a letter Wednesday to the director of the U.S. Office of Government Ethics.
Reuters:
- Wall Street may be losing its luster for new U.S. college graduates who are increasingly looking to the government for jobs that enrich their social conscience, if not their wallet.
- Goldman Sachs Group Inc (GS) is taking much more trading risk than rival Morgan Stanley (MS), and some analysts wonder if the largest investment bank could be making itself vulnerable to another downturn. Goldman's supporters say the bank is keeping to a strategy that served it well during the financial meltdown: fund itself in bond markets and trade actively, both for clients and its own account. But Goldman is also forgoing many of the safety measures that competitors like Morgan Stanley have embraced, such as building businesses less dependent on trading activity and finding reliable sources of cheap deposit funding. If the economy deteriorates and bond markets seize up again, the bank could find itself posting big losses.
Financial Times:
- General Electric(GE), the US industrial group, will announce a $500m deal on Thursday to supply new gas and steam turbines to the Kingdom of Bahrain as the company continues to push for a greater presence in the Middle East to counteract troubles in its domestic market. Through the deal GE will supply advanced power equipment and services to Al Dur, Bahrain’s largest power plant, which will generate 30 per cent of the country’s electricity when completed. The move is GE’s latest effort to embrace faster-growing emerging markets while it struggles domestically and works to shrink its finance arm, GE Capital. GE has signed more than $6bn worth of contracts in the Middle East during the last year, which the New York-based company notes is supporting domestic manufacturing jobs and boosting its wind business which is lacking a strong market in the US. In 2008 GE signed a $3bn contract with Iraq for 56 turbines for a project that was to double the country’s capacity to generate electricity. The company has more than 1,000 of its turbines operating throughout the Middle East.
- Deloitte is suffering from the slowdown in China, which is forcing the accountancy firm to impose unpaid leave on staff, its global head said on Wednesday. James Quigley, global chief executive of Deloitte, said that while the Chinese market for accountancy firms had been buoyant during the boom in initial public offerings and mergers and acquisitions, the firm had more recently been affected by a slowdown in activity.
- Iran’s presidential election campaign moved towards a gripping climax last night, ahead of a poll that has turned into a referendum on Mahmoud Ahmadi-Nejad’s performance. Thousands of demonstrators camped around the state broadcaster to protest against a final television address allocated to the controversial incumbent, while hundreds of thousands joined carnival-like parades through the country. The most hotly contested election in Iran’s post-revolutionary history could have a significant impact on the evolution of domestic and foreign policy. Mir-Hossein Moussavi, a reformist who poses a serious challenge to the fundamentalist president, has pledged to loosen social restrictions and to pursue detente with the west, while Mr Ahmadi-Nejad has vowed to continue his controversial economic and nuclear policies.
TimesOnline:
- Three British companies have been shortlisted to bid for contracts to work on Iraq's oil and gas fields, pitting themselves against 32 other non-Iraqi companies in a televised, two-day bidding procedure revealed at Baghdad's Oil Ministry.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (JCP), target $43.
Night Trading
Asia Ex-Japan Inv Grd CDS Index +1.61%
Morning Preview
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Earnings of Note
Company/EPS Estimate
- (DLM)/.27
Economic Releases
8:30 am EST
- Advance Retail Sales for May are estimated to rise .5% versus a -.4% decline in April.
- Retail Sales Less Autos for May are estimated to rise .2% versus a -.5% decline in April.
- Initial Jobless Claims for last week are estimated to fall to 615K versus 621K the prior week.
- Continuing Claims are estimated to rise to 6780K versus 6735K prior.
10:00 am EST
- Business Inventories for April are estimated to fall -1.0% versus a -1.0% loss in March.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
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