Late-Night Headlines
Bloomberg:
- The U.S. Internal Revenue Service is shifting authority to audit wealthy Americans suspected of offshore tax evasion to an elite division usually assigned to examining corporations as it prepares to receive data on 4,450 UBS AG Swiss bank accounts.
- American International Group Inc.(AIG) Chief Executive Officer Robert Benmosche told employees that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to staff who got retention bonuses. Benmosche criticized Cuomo and lawmakers during a town-hall style meeting this month for life insurance workers in Houston. Cuomo subpoenaed AIG in March during a national furor about $165 million in retention bonuses sent after the firm’s bailout and said those who returned the cash wouldn’t have their names published. That month, some employees received death threats and protesters visited the Connecticut homes of two AIG executives. “What he did is so unbelievably wrong,” Benmosche said during the Aug. 11 remarks, according to a record obtained by Bloomberg. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.” After being approached by Bloomberg today about the remarks, AIG said that Benmosche “regrets his comments regarding Mr. Cuomo and the tone of those comments” and said that Cuomo resisted pressure to release names. Benmosche has blamed regulators for the company’s near collapse in remarks he’s made to employees since being appointed CEO this month. While comments in an earlier address focused on unnamed officials at the Federal Reserve and Treasury, Benmosche in Houston singled out Cuomo, the chief prosecutor of New York, where some of the world’s largest financial firms are based.
- CVS Caremark Corp.(CVS) and Walgreen Co.(WAG), the two largest U.S. drugstore chains, will offer free seasonal flu shots to unemployed and uninsured people as the U.S. jobless rate is predicted to rise to 10 percent. CVS will offer 100,000 free seasonal flu shots valued at about $3 million to job seekers, the Woonsocket, Rhode Island- based company said today in a statement. Walgreen, based in Deerfield, Illinois, will distribute $1 million in shots to the uninsured through its 7,000 U.S. stores and clinics.
- Former Illinois Governor Rod Blagojevich writes in a new book that White House chief of staff Rahm Emanuel wanted a “placeholder” put in the Chicago congressional seat he vacated so he could reclaim it in 2010. Blagojevich, who is awaiting trial on corruption charges, said he talked by phone with Emanuel Nov. 8, two days after his White House appointment was announced, and the then-U.S. representative asked whether it was possible to name someone to fill his seat who would be willing to step aside later. Emanuel wanted to return to the House after two years in the Obama administration to continue his quest to become speaker of the House one day, according to Blagojevich.
Wall Street Journal:
- Recent town-hall uproars weren't just about health care. They were also eruptions of concern that the government is taking on too much at once. That suggests trouble for the president's Democratic Party, and fears of losses in next year's midterm election are likely to shape the party's fall agenda.
- Bank of America Corp.(BAC) is offering to repay part of its bailout money, and the U.S. is pushing for the bank to pay nearly $500 million to shelve a tentative pact that would have had the government share its losses on certain assets. The moves, described by people familiar with the matter, both relate to an extra measure of federal aid given to help BofA complete its acquisition of Merrill Lynch & Co. Both sets of discussions, if completed, would enable BofA to reduce a layer of federal involvement in its affairs.
- Day after day, economists, politicians and journalists repeat the trope that the current recession is the worst since the Great Depression. Repetition may reinforce belief, but the comparison is greatly overstated and highly misleading. Anyone who knows even a bit about the Great Depression knows that this is false. The facts we face today are very different than the grim reality Americans confronted between 1929 and 1932. True, this recession is not over. But it would have to get improbably worse before it came close to the 42-month duration of the Great Depression, or the 25% unemployment rate in 1932. A more accurate comparison is to the 1973-75 recession. Today's recession is as deep and most likely won't be much longer than the one we experienced some three decades ago. By pointing this out, I do not intend to minimize the damage that the economic crisis has had on individuals and businesses. But as policy makers make decisions in order to alleviate the recession, they are not helped when economists overstate its severity.
- The head of the Securities and Exchange Commission on Monday sent a letter to chief executives at brokerage firms warning them against offering certain compensation arrangements that may leave customers at risk. "Recent press articles have reported that some broker-dealer firms may be engaging in a vigorous recruiting program for broker-dealer registered representatives, including large up-front bonuses and enhanced commissions for sales of investment products," SEC Chairman Mary Schapiro wrote in the letter, noting that chief executives have an obligation to police their policies for conflicts. "Certain forms of potential compensation may carry with them enhanced risks to customers," the letter continued. Schapiro said some compensation structures could lead representatives to believe they need to sell securities at a "sufficiently high level" to justify special arrangements they have received. Those pressures in turn, Ms. Schapiro continued, could "create incentives to engage in conduct that may violate obligations to investors' and lead to the sale of unsuitable investment products.
- Dell Inc.(DELL) will start selling networking gear made by Brocade Communications Systems Inc. under the Dell brand.
- Restaurants trying to get more families to dine out have a new recipe: Get rid of the French toast sticks. Put more broccoli and carrots on the menu. Let the kids eat free. The industry is scrambling to counter a tendency by recession-pinched parents to leave their children at home when they go out to eat. Restaurant visits among groups with kids fell 5% in the 52 weeks ended June 30 compared with a year earlier, according to researcher NPD Group. Restaurants are responding with revamped kids' menus, healthier food and kids-eat-free nights. Such moves are tricky to do well because restaurants must appeal to young palates while addressing parents' health concerns. This summer, P.F. Chang's China Bistro Inc.(PFCB) and The Cheesecake Factory Inc.(CAKE) added their first-ever kids' menus.
- Richard Trumka, the third-generation coal miner likely this month to assume the helm of the nation's largest labor federation, is launching a drive to court younger workers, many of whom don't see unions as relevant.
- The government's pay czar triggered a 60-day clock to rule on pay packages at seven firms receiving significant amounts of federal rescue funds, but he is expected to decide well ahead of that deadline, government officials said. Kenneth Feinberg, the Treasury Department's special master for compensation, has determined that the pay packages proposed by the companies are "substantially complete," a determination that requires him to rule by the end of October.
- Last week, International Atomic Energy Agency (IAEA) Director General Mohamed elBaradei attempted to whitewash Iran's nuclear weapons program by issuing a report ignoring substantial information about weaponization activities and downplaying continued noncooperation. Even the Obama administration apparently now understands that resuming the long-stalled "Permanent-Five plus-one" negotiations (the U.N. Security Council's permanent members plus Germany) with Iran is highly unlikely to halt Tehran's nuclear ambitions.
NY Times:
- Four years after she took over management of the General Motors pension plans, Nancy Everett finds herself in an unexpected controversy. Performance is not her problem. The G.M. pension fund has withstood the unforgiving financial markets of the last year or so better than many other funds, using a conservative strategy that is intended to minimize risk. But the government is looking closely at the pay of all top G.M. employees after bailing out the automaker. And that includes the unit that manages the pension fund, whose name was changed to Promark Global Advisors this year. Ms. Everett, chief executive of Promark, and 14 of her associates are among the 25 highest paid at the automaker. Their compensation has been submitted for review to Kenneth Feinberg, the government’s pay czar.
Business Week: Lost amid the talk about Goldman Sachs(GS) being a vampire squid and making money from the subprime mortgage bust is the fact that the firm lost $6 billion trading, of all things, its own stock. Yes, Goldman, which likes to be known as the smartest shop on Wall Street, bought high and sold low, plain and simple. How it happened might even show you how to make money at Goldman’s expense a few years from now. The heart of Goldman’s mistake was excessive self-confidence. In 2006 through early 2008, the firm spent nearly $18 billion buying 100 million shares of its own stock, paying $183 a share on average. Then the financial panic hit in September and Goldman had to replace the money. The firm sold 94 million shares in offerings in the fall and spring to raise $12 billion at $123 a share. It also sold preferred stock and warrants to the government and Warren Buffett at similarly low prices, but even without counting those special deals, the bottom line is clear: Goldman lost more than $6 billion because it was wrong to think it had enough capital to get through the trouble it knew was coming.
Washington Post:
- With weeks to go until a U.S. deadline for opening talks, a spokesman for Iranian President Mahmoud Ahmadinejad said Monday that he plans to travel to New York to give a speech during the annual meeting of the United Nations General Assembly on Sept. 23. The announcement came as international pressure continued to build for sanctions unless Iran is willing to negotiate over its nuclear program. The visit will roughly coincide with a Sept. 15 deadline set by the White House for Iran to respond to an offer to open talks on the nuclear issue.
Politico:
- After two of the deadliest months of the war in Afghanistan, the commander of U.S. forces there said Monday that “success is achievable” but will require a change in strategy. “The situation in Afghanistan is serious, but success is achievable and demands a revised implementation strategy, commitment and resolve, and increased unity of effort,” said Gen. Stanley McChrystal, commander of nearly 60,000 U.S. troops in Afghanistan.
- Buffalo News: Rangel should resign. The Buffalo News has had enough of Charlie Rangel, following the disclosure that the House Ways and Means Chairman massively underreported his assets. It'll be interesting to see if other papers follow suit. If the Times eventually draws the same conclusion [which they aren't likely to do prior to the conclusion of the interminable Ethics Committee probe], look out.
Reuters:
- Two prominent Republican congressmen on Monday said trustees for the government's stake in American International Group lacked accountability and requested an audit of the arrangements by the U.S. bailout inspector general. After AIG was bailed out last year with about $180 billion in U.S. taxpayer support, a three-member trust was created to manage and eventually dispose of the government's effective 80 percent stake in the insurance giant. Rep. Darrell Issa, the top Republican on the House of Representatives Oversight and Government Reform Committee, and Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee, sent the audit request to Neil Barofsky, inspector general for the $700 billion Troubled Asset Relief Program. They said the lack of transparency and accountability in the AIG trust was relevant if Treasury moves forward with a similar trust agreement for its interest in Citigroup (C), another financial institution with extraordinary government support. "It is not clear how the American people can hold the AIG trustees accountable for their actions," wrote Issa and Bachus. "While the trustees have the discretion to exercise full control over AIG, since the American taxpayers own nearly 80 percent of its shares, the trustees cannot be fired if their decisions conflict with the preferences of government officials. This raises a troubling and urgent question: Who can the American taxpayers hold accountable if the trustees make a decision that is not in their best interest?"
- U.S. gold and soybean markets fell on Monday following a weekend report that China's state companies may default on commodity derivative contracts with banks providing over-the-counter hedging services. Traders in other commodities markets in the United States were cautious, underscoring China's predominance as a buyer in global markets from metals to grain to oil after it played a key role in rallying prices to record highs last year.
- Chile said on Monday that copper prices could average $2.13 per lb between 2010 and 2019, based on estimates from a panel of experts used to help draft next year's national budget bill. The 12 experts, which include academics and think tank analysts, based their projections on prices at the London Metal Exchange MCU3.
Financial Times:
- Google (GOOG) has forged a distribution alliance with Sony ’s PC division and is in talks with other computer makers as it looks to promote its well-regarded but little-used Chrome browser.
- Tight credit conditions are likely to weaken the UK’s economic recovery, according to a report published on Tuesday. A survey from the Engineering Employers’ Federation showed a rise in the cost of borrowing and a fall in the number of companies reporting lower borrowing costs in the third quarter. The report also noted only a small reduction in the number of UK manufacturers reporting more difficult access to credit, in spite of interest rates falling to record low levels and efforts to free up liquidity in the banking system. The survey showed 47 per cent of companies reported an increase in the cost of finance in the past two months. This compared with 44 per cent in the second quarter and 37 per cent in the first quarter. Furthermore, only 7 per cent of companies saw a fall in the cost of borrowing, down from 10 per cent in the second quarter. Some 56 per cent of manufacturers also reported higher costs for new lines of borrowing, up from 51 per cent in the second quarter. A third of companies saw a reduction in the availability of new lines of borrowing, with 36 per cent of small companies and 17 per cent of larger companies reporting a fall in the availability of new lending lines.
Nikkei English News:
- Toshiba Corp.’s semiconductor business is likely to return to profit in September because of increased demand for consumer electronics. The company’s chip business may have an operating profit of a few billion yen in the July-September quarter. Elpida Memory Inc. may also return to profit in September the report said.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (LMT) to Buy, target raised to $90.
- Reiterated Buy on (INTC), target raised to $25.
- Upgraded (ALXN) to Buy, target $55.
CSFB:
- Raised (RIMM) to Outperform, target $95.
- Raised (MOT) to Outperform, target $9.50.
- Reiterated Outperform on (PALM), target $18.
- Cut (NOK) to Underperform.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 139.0 +4.5 basis points.
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Earnings of Note
Company/EPS Estimate
- (DCI)/.30
- (TTWO)/-.68
- (PAY)/.18
Economic Releases
10:00 am EST
- ISM Manufacturing for August is estimated to rise to 50.5 versus 48.9 in July.
- ISM Prices Paid for August is estimated to rise to 57.8 versus 55.0 in July.
- Construction Spending for July is estimated unch. versus a .3% rise in June.
- Pending Home Sales for July are estimated to rise 1.6% versus a 3.6% gain in June.
Afternoon:
- Total Vehicle Sales for August are estimated at 13.3M versus 11.3M in July.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and mining shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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