Late-Night Headlines
Bloomberg:
- The U.S. Securities and Exchange Commission may force investors to disclose derivative stakes in companies, a step that would make it difficult for hedge funds to accumulate equity-swap positions without tipping off targets. SEC Chairman Mary Schapiro, in remarks prepared for lawmakers today, said the agency is considering whether disclosure rules for stocks should apply to “security-based” derivatives that don’t trade on exchanges. The agency also is weighing whether an equity swap tied to a company’s performance should be treated the same as holding the shares, she said.
- Merck & Co.(MRK) sold $4.25 billion of bonds in a four-part offering, its biggest ever, to finance the acquisition of rival drugmaker Schering-Plough Corp.
- WSI Corp. repeated its forecast that 11 named storms, including six hurricanes, will develop in the Atlantic this season. Two of the systems may become major storms, with winds of 111 miles (179 kilometers) per hour or greater, the Andover, Massachusetts, company said, maintaining its forecast from last month. The season runs from June 1 to Nov. 30. Cooler water temperatures in the Atlantic and the possibility that the Pacific may warm and create El Nino conditions will combine to hinder storm formation, WSI, a maker of forecasting software, said in a statement. From 1950 through last year, the average was 9.8 named storms per season and six hurricanes, of which 2.5 were major, the statement said.
- Japan may cancel a planned $1.5 billion loan for Venezuela’s El Palito and Puerto La Cruz oil refineries after the South American nation seized Japanese company assets, said a person familiar with the situation.
- “Unimpeded” oversight of the $592 trillion over-the-counter derivatives market should be shared between the Securities and Exchange Commission and Commodity Futures Trading Commission, the heads of those agencies said. Primary responsibility for derivatives tied to securities, including credit-default swaps, should go to the SEC, agency Chairman Mary Schapiro told a Senate subcommittee in Washington today. Other derivatives, including those related to interest rates and commodities, should be regulated by the CFTC, Chairman Gary Gensler said. Both advocated a dual regulatory structure. “The CFTC and SEC should have clear, unimpeded oversight and enforcement authority to prevent and punish fraud, manipulation and other market abuses,” Gensler said.
- Mortgage originations in the U.S. may total $2.03 trillion this year, 27 percent less than earlier forecast, as rising interest rates reduce home refinancings, the Mortgage Bankers Association said. Today’s forecast cuts $700 billion from the Washington- based group’s March estimate, a change MBA Chief Economist Jay Brinkmann said came because the Federal Reserve’s pledge to buy as much as $300 billion in U.S. Treasuries hasn’t been enough to keep Treasury yields and mortgage rates down. Rates for a 30-year fixed home loan rose to 5.47 percent on June 19, according to Bankrate.com. “The Fed’s in a difficult spot,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. “If I were the Fed, I would try very hard to do everything in my power to keep that long-end down.” “While home sales have been higher than expected, home prices have fallen more than expected, leading to smaller loans,” Brinkmann said. Rising mortgage rates “began to choke off the refinance wave in May, much earlier than anticipated.”
- Global aluminum output rose 5.1 percent to a four-month high in May as China, the world’s largest producer, made more metal, the International Aluminium Institute said. Production climbed to 2.96 million tons, the highest since January, from 2.81 million tons in April, according to figures posted today on the London-based institute’s Web site. Chinese production gained 10 percent to 984,000 tons, the highest since November. Aluminum, the most-traded contract on the London Metal Exchange, has advanced 5.2 percent this year, the least among all nonferrous metals traded on the bourse. Inventories tracked by the LME have jumped 87 percent in 2009, weighing on prices.
- Corn fell near a seven-week low and soybeans dropped to the lowest since early April on speculation that warm, wet weather in the U.S. Midwest will help accelerate plant development and yield potential of both crops. About 70 percent of the U.S. corn crop was in good or excellent condition as of June 14, compared with 57 percent a year earlier, while 66 percent of soybeans got top ratings, the U.S. Department of Agriculture said last week. Warm, wet weather forecast for the next 10 days will aid plant development, said Charlie Sernatinger at Fortis Clearing Americas LLC. The U.S. is the world’s largest producer and exporter of both crops.
- Intel Corp.(INTC), the world’s largest chipmaker, will supply Nokia Oyj with processors for mobile devices, a breakthrough in its effort to enter the phone market, a person familiar with the matter said. The deal will be announced on a conference call tomorrow, said the person, who declined to be identified because the details are confidential. Intel scheduled the call for an “important announcement” with Anand Chandrasekher, senior vice president of the company’s ultra-mobility group.
Wall Street Journal:
- Volkswagen AG (VLKAY) plans to reduce output at its Puebla, Mexico, plant during the entire month of July, affecting production of Jetta models, as well as the Beetle, a company spokeswoman said Monday. Production of the SportWagon, or Golf Variant, will continue as usual during the period thanks to sufficient sales of the model in Europe, the Volkswagen de Mexico spokeswoman added. Volkswagen's Mexican plant, which posted record output last year of more than 450,000 cars, has been partially or fully idled several times already this year as the company adjusts to lower global demand.
- The new U.S. commander in Afghanistan is finalizing a far-reaching change in tactics that will generally require U.S. troops taking fire in populated areas to break contact rather than risk civilian casualties, military officials said. U.S. officials said the rules were designed to reduce the use of bombs, missiles and other heavy weaponry in populated areas. They will require U.S. forces that come under fire from militants operating out of houses and other buildings that may contain civilians to end the engagement and leave the area, officials said. The restrictions could force commanders to be more cautious in the mission-planning stage and eschew operations likely to require operations in populated areas, according to an officer serving in Afghanistan.
- A six-car Metro train collided with another train during the height of rush hour Monday in northeast Washington, D.C., killing four and causing a number of injuries.
- The Pentagon continues to trail a North Korean cargo ship believed headed toward Myanmar, in part because U.S. officials worry that Pyongyang plans to transfer major weapons systems and possibly nuclear technologies to the repressive Southeast Asian country, current and former U.S. officials said. North Korea has used Myanmar ports and airstrips to transfer arms and contraband to third countries, including Iran, these officials said.
- Two large U.S. wireless carriers plan to launch Motorola Inc.(MOT) smart phones based on Google Inc.'s(GOOG) Android operating system before the end of the year, according to people familiar with the matter. The Google-powered phones, which will be carried by Verizon Wireless and T-Mobile USA Inc., are the result of Motorola Co-Chief Executive Sanjay Jha's efforts in recent months to overhaul the company's struggling handset division. Motorola is betting heavily on Android to regain traction in the cellphone market.
- Tim Cook, who has run Apple Inc.(AAPL) for five months while Steve Jobs has been on medical leave, has emerged as a star in his own right -- and one that the company needs to make sure stays put. "At this point, losing Tim Cook would be a bigger deal to investors than if Steve Jobs stepped aside," says Gene Munster, an analyst for Piper Jaffray. "Just that thought makes my stomach tighten up." Mr. Cook has been the target of overtures from other technology giants in the past: Motorola Inc. tried to hire Mr. Cook last year while Dell Inc. wooed the executive two years ago, according to people familiar with the situation. The Cupertino, Calif., company's board of directors is "acutely aware that Tim is a very attractive property," said a person familiar with Apple's thinking. As a result, the chief operating officer and 11-year Apple veteran may be invited onto Apple's board. He currently serves on the board of Nike Inc. Recruiters say Mr. Cook's leadership of Apple over the past five months has solidified his reputation as an attractive candidate for large companies looking for someone to run all or a big piece of their businesses.
MarketWatch.com: A "cap-and-trade" system for limiting greenhouse gas emissions contained in a House bill would cost each U.S. household $175, a Congressional Budget Office study found. Republicans contended, however, that the report actually shows that households would pay $770 more a year. That is the dollar amount forecast when including costs to some households related to costs to be incurred by federal, state and local governments, and related to allowances to businesses. Rep. Dave Camp, R-Mich., said the analysis showed that the climate legislation would be a "new multibillion-dollar tax on every American family." "This is a direct violation of the president's pledge that families making less than $250,000 would not pay higher taxes," said Camp, who requested the CBO study.
- Figures on distillates, which are a classification of a refinery product that includes heating oil and diesel, clearly point to a "possible rendezvous with storage problems in already chock-full U.S. markets," he said, noting that distillate demand is at 3.38 million barrels per day, some 20% below year-ago levels. "It can't be disputed that U.S. demand for diesel, whether on-road or agricultural, is about as bad as it has been in five or six years," he said. At the same time, distillate supplies have hit 150 million barrels nationally, according to government data. Kloza said he can't find any recorded instance of stocks in June ever being that high. The U.S. already has a 41.9-day supply of distillate stocks, up from 27.8 days' worth last year, said John Eichberger, vice president of government relations for the National Association of Convenience Stores. NACS represents an industry that sells 80% of the nation's gasoline.
NY Times:
- A year and a half after a landmark labor law took effect in China, experts say conditions have actually deteriorated in southern China’s export-oriented factories, which produce many of America’s less expensive retail goods. With China’s exports reeling and unemployment rising because of the global slowdown, there is growing evidence that factories are ignoring or evading the new contract labor law, and that the government is reluctant to enforce it. Government critics say authorities fear that a crackdown on violators could lead to mass layoffs and even social unrest.
- It takes a lot of moxie to raise prices in a deep recession, particularly when you are the newcomer to a hotly competitive market. But that’s exactly what Verizon(VZ) is doing with its FiOS service. In many markets, the company is raising the price of basic triple play bundle (TV, Internet and Phone) to $109 from $99 . The price of its step-up bundle, with faster Internet service and more channels, goes up by $10 to $119. The price of the most expensive bundle falls to $129 from $139, but now that includes Showtime instead of HBO and a bunch of other movie channels.
- First hedge funds battled the markets. Now they are battling Washington. After a tumultuous run for many of these funds, this normally secretive corner of Wall Street is mobilizing its money and power to fend off tougher oversight, higher taxes and much greater transparency. At the center of the fray is Richard H. Baker, the former Republican congressman who now leads the industry’s main lobbying group, the Managed Funds Association. This year Mr. Baker has tried to persuade hedge fund managers to support proposals to require funds to register with federal regulators — a move some big funds did not initially support, but one many others see as a bargaining chip that could avert even tougher restrictions. Mr. Baker has also met with Treasury officials and has been the host of gatherings to raise money for Christopher J. Dodd, the Democratic chairman of the Senate Banking Committee. He has events planned for Barney Frank, the Democratic leader of the House Financial Services Committee, and Mr. Frank’s Republican counterpart, Richard C. Shelby. The effort seems to be working. The proposals for hedge funds laid out by the Obama administration last week, as part of its overhaul of financial regulation, are strikingly similar to those that hedge fund lobbyists said they would accept. Donations in the industry have long been slanted toward Democratic candidates, and $11 million of last year’s nearly $17 million in donations were doled out to Democrats, according to the Center for Responsive Politics. In the last two years, fund managers have also spent about $15 million on lobbyists, quadruple the amount they spent in past years. Mandatory registration has been discussed for so long, in fact, that many in the industry regard it as the issue to fight over to avoid other, more pressing matters.“It’s a red herring,” said Robert Sloan, managing partner at S3, which helps hedge funds manage their positions. “What other business in the world doesn’t want to register its name and number, the mafia? The real issues are counterparties, leverage, shorting, derivatives and exchanges.” James Chanos, the prominent short-seller who runs Kynikos Associates, was an early supporter of registration. The group, called the Coalition of Private Investment Companies, has put up Web sites recently to educate the public on hedge funds and short-selling.
CNNMoney.com:
- The government wants to make it harder for retailers, industrial firms and other non-banks to own banks. But six months ago, it made a big exception for GMAC.
LA Times:
- Businesses that depended on credit cards to make purchases and manage monthly cash flow are either paying higher interest, unable to open new lines or having existing ones canceled. For small-business owners who rely on business credit cards, the recessionary landscape looks extra bleak these days.
Philly.com:
- Obama's plans for tougher bank regulation could wipe out the credit card industry's centers in Delaware and South Dakota, including around 20,000 jobs in Wilmington, says Alan S. Kaplinsky, a partner at Philadelphia's Ballard Spahr who has represented Wilmington-based MBNA (now owned by Bank of America) and First USA (now part of JPMorgan Chase & Co.), among other card lenders. Plans in the president's 89-page bank-reform "White Paper" -- Financial Regulatory Reform: A New Foundation -- will cost bankers money, and they'll pass the higher cost to consumers through "higher interest rates" and "restricted credit availability," Kaplinsky tells me.
Reuters:
- Apple(AAPL) Chief Executive Steve Jobs showed up for work on Monday and was spotted leaving the main corporate campus in Cupertino, California, a Reuters witness said.
- Rain and cooler-than-usual weather so far in June may have dampened demand for summer items such as sandals, swimwear and beer for retailers already hard put to counter sales declines during the recession. The effect may be most pronounced in the U.S. Northeast, where June so far has been the coldest in 27 years and is on track to become one of the wettest Junes on record, according to weather research firm Planalytics, which has tracked such data since the 1930s. June in the Midwest so far is the coldest in six years and has been wetter than normal, but still not close to last year when it was the second wettest in 50 years. It is the wettest in 4 years in the U.S. Southeast and U.S. Southwest and the coldest in 42 years in the Southwest, the weather tracking firm said.
- Visa Inc(V) and MasterCard Inc(MA), the world's largest payment networks, could face lower revenue and pressure on their stock prices amid a push for increased U.S. regulation of credit cards. Specifically, Congress is mulling regulations on interchange rates -- fees retailers and merchants have to pay to banks that issue credit cards. Most immediately, that would affect the banks that collect those fees. But some investors and analysts are concerned the banks -- already battered by credit losses and toxic assets -- could try to share the haircut with Visa and MasterCard. "Longer term, I think it is a real risk for the model, but this could impact their stocks right now," said Donald Fandetti, an analyst at Citigroup.
- Canada expressed concern on Monday that the huge U.S. deficit will pressure interest rates, but urged governments worldwide to follow through on stimulus spending plans to speed up the economic recovery. Finance Minister Jim Flaherty said he worries that increased government borrowing to make up budget shortfalls, while necessary in the short term, could lead to dangerously higher interest rates in the long term. "The immensity of the American deficit over time is a concern because of pressure that it can bring on interest rates, and in other ways," he told reporters at a news conference. Flaherty said governments should bear in mind their commitment to keep stimulus spending temporary, as a quick fix to the global recession, and seek to balance the books as quickly as possible after the economy starts growing again.
Financial Times:
- The European Central Bank is on track to deliver a record-breaking “stimulus by stealth” to the eurozone economy on Tuesday, as the first-ever offer of unlimited one-year funds could see demand running into several hundred billion euros. The size of the ECB’s emergency liquidity-boosting operation, which was announced last month, is expected to be bolstered dramatically by the belief in financial markets that eurozone official interest rates will not fall – and the opportunity to borrow on such favorable conditions will not be repeated. Analysts said demand was likely to exceed the previous record €348.6bn ($483bn), injected in a single ECB operation in December 2007. “This could be a big final easing – by stealth,” said Erik Nielsen, European economist at Goldman Sachs. “If I were a bank I would be gathering up all the furniture to use as collateral to take part.”
- The financial crisis could cost insurers $6bn (€4.3bn) on policies that protect US companies and directors from legal costs, insurance consultants have warned. Disgruntled investors hoping to recover their losses have filed a spate of lawsuits against companies and their executives since 2007, resulting in a dramatic increase in claims activity under so-called directors and officers (D&O) policies. Towers Perrin and Cornerstone Research, which track class action lawsuits, said 210 securities class actions were filed last year, up 19 per cent on 2007. Almost half of the litigation activity in 2008 involved financial services companies. Combined with rising settlement costs for class action suits and the extent of policy coverage for targeted US financial companies, insurance companies could be on the hook for about $6bn of payouts, says Advisen.
TimesOnline:
- Dubai’s dream is built on sand. The credit crunch has ripped through Dubai, leaving the emirate battling to show its grand plans are more than a mirage. The global recession has ripped through Dubai, leaving its dream of becoming the Switzerland of the Middle East looking like a mirage. Locals who used to joke that Dubai would be a great place “when it’s finished” now wonder whether it’s finished. They’re counting the cost in Britain, too. The UK has invested more in Dubai than any other country – an estimated £3 billion. British companies are owed more than £400m by troubled state-backed firms. Raw numbers confirm the desert storm.
The Economic Times:
- Taiwanese handset manufacturer HTC will launch India's first smartphone on Tuesday that will run on Google's(GOOG) open-source Android operating system. Sources tell ET NOW that Bharti Airtel will be the exclusive carrier for the device that is likely to be priced at around Rs. 25,000.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MAN), boosted est., raised target to $50.
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- Existing Home Sales for May are estimated to rise to 4.82M versus 4.68M in April.
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BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and automaker stocks in the region. I expect US
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