Monday, September 14, 2009

Tuesday Watch

Late-Night Headlines

- The U.S. Treasury Department and Citigroup Inc. have begun discussing how to sell the 34 percent stake that the government acquired in the rescue of the bank, people familiar with the matter said. The Treasury, which owns about 7.69 billion common shares after a recent stock conversion designed to shore up the bank’s capital, may start unloading the stake as soon as October, said one of the people. It aims to sell the holdings over the next six to eight months, the person said. While the Treasury hasn’t developed a formal plan for the sale, it is considering options, the people said. Under one scenario, the shares would be sold to public investors in blocks over six to eight months. Or the government may sell a small amount of stock daily or weekly, said the people, who declined to be identified because the talks are private. Under a third option, the shares would be sold at once in a managed offering.

- The cost to protect against defaults on U.S. corporate bonds fell to the lowest level in five weeks as stocks rallied and record bond sales eased refinancing concerns. Swaps on Textron Inc. dropped to an 11-month low as the Providence, Rhode Island-based company said it’s issuing new debt to repay notes maturing through 2012. Contracts on Sprint Nextel Corp. fell the most in more than four months after a report that Deutsche Telekom AG is considering taking over the third-biggest U.S. mobile-phone operator. Evidence the economy is improving and investor demand are driving corporate yields down relative to benchmark Treasury rates, according to JPMorgan Chase & Co. analysts in New York, causing the perception of credit quality to improve. Investor inflows into the market accelerated during the U.S. summer months, the analysts wrote in a Sept. 11 report. “The fund flows are a major factor in helping high-yield spreads rally and the indirect impact of the high-yield compression is helping investment-grade rally,” Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California, said in an e-mail. Another reason “is that issuance is up and refinance risk is therefore down.” Companies have sold a record $896 billion of bonds in the U.S. this year, up 32 percent from the same period of 2008, Bloomberg data show. Credit swaps on the Markit CDX North America Investment- Grade Index, used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, dropped 4 basis points to a mid-price of 107 basis points as of 5:03 p.m. in New York, according to Barclays Capital. That’s the lowest since Aug. 10, according to CMA DataVision. A decline typically signals an improvement in the perception of credit quality.

- Federal law enforcement agents and New York police raided several locations in New York City as part of a joint terrorism investigation, a police department spokesman said. Searches took place in the borough of Queens, according to a law enforcement official with knowledge of the matter who added that investigators had suspects under surveillance. Senator Patrick Leahy, Democrat of Vermont and chairman of the Judiciary Committee, Senator Joseph Lieberman, the Connecticut independent who chairs the Homeland Security and Governmental Affairs Committee, and Maine Senator Susan Collins, the panel’s top Republican, were briefed in the Capitol by law enforcement officials today. They declined to comment when asked about the probe. In June, four men were indicted for allegedly plotting to set off explosives outside a New York City synagogue and shoot down military planes with Stinger anti-aircraft missiles, U.S. prosecutors said. The charges against the men, residents of Newburgh, New York, include conspiracy and attempt to use weapons of mass destruction within the U.S., conspiracy and attempt to acquire and use anti-aircraft missiles, and conspiracy and attempt to kill officers and employees of the U.S, according to the indictment. The men were arrested in May after attempting to detonate explosives near a synagogue and Jewish community center in the Riverdale section of the Bronx, in New York City, according to the indictment. The four also plotted to shoot down military planes at the New York Air National Guard Base at Stewart Airport in Newburgh, prosecutors said. In July, Campbell’s office said that a New York man who pleaded guilty to launching a rocket attack on a U.S. military base in Afghanistan also said he provided information to al- Qaeda leaders about New York City’s transit system for a bomb attack. The man, Bryant Neal Vinas, pleaded guilty to conspiracy to murder U.S. citizens, providing material support to a terrorist organization and receiving military-type training from a terrorist group on Jan. 28, according to court records unsealed in July in federal court in Brooklyn.

- Coal shipments from Australia’s Newcastle port, the world’s biggest export harbor for the fuel, fell 5.6 percent last week while the number of vessels waiting to load declined. The volume exported in the week ended 7 a.m. local time yesterday dropped to 1.9 million metric tons from 2.02 million tons a week earlier, Newcastle Port Corp. said on its Web site. Forty ships, waiting to load 3.6 million tons of coal, were outside the harbor, down from 43 vessels. Coal ships queued for an average 12.6 days to load, down from 14.8 days a week earlier, Newcastle Port said.

- Australia, the world’s fourth- largest wheat exporter, may produce 3.2 percent more of the grain than previously forecast on expectation of bigger crops in the nation’s western and southern states. Bureau of Agricultural and Resource Economics said today. That compares with its June prediction of about 22 million and last year’s crop of 21.4 million tons. Exports are forecast at a four-year high of 15.5 million tons. “In Western Australia, South Australia and Victoria the majority of crops are well placed leading into the spring months,” the bureau said in a statement. “Rainfall in the spring months is crucial for crops in all regions to reach current potential.” Australian farmers have planted the second-biggest area to winter crops in 14 years and will begin harvest from about November. Wheat prices have plunged 67 percent from last year’s record on expectations the world’s farmers will produce the second-biggest crop on record.

- Coal-heavy power plants will see profit drop by 20 percent if cap-and-trade carbon-reduction legislation is implemented, Standard & Poor’s analysts said. Earnings before interest, taxes, depreciation, and amortization would decline by a fifth by the mid 2020s on even nominal dollar terms if the American Clean Energy and Security Act of 2009 passed by the House of Representatives becomes law, S&P analysts led by Swami Venkataraman said in a report today. The report, one of two on the climate-change legislation today, finds that the share of power that comes from coal could drop to as low as 33 percent from 50 percent because of the bill.

- China’s move to investigate whether the U.S. sold poultry to the Asian nation for below-market prices was prompted partly by bad U.S. trade policies, the USA Poultry & Egg Export Council said. China is responding to the Obama administration’s decision to impose tariffs on imports of Chinese tires and a decision by Congress that effectively bans imports of cooked poultry, James Sumner, president of the poultry council, said today in a telephone interview. The council, representing producers of 90 percent of U.S. chicken and egg exports, opposed both policies. “Our own government is creating these problems more so than the Chinese,” Sumner said. “We are upset with the way this has been handled by the administration.”

- Google Inc.(GOOG), seeking to boost advertising sales from online news, introduced a feature called Fast Flip that lets people quickly browse through articles online. With Fast Flip, people can browse through groups of news pages and articles from individual publications, Google said today on its blog.

- Towa Corp., the second best- performer in Japan’s Topix index this year, may top its sales forecast for light-emitting diode equipment by more than 10 percent on increased demand from consumer electronics makers. Kyoto-based Towa, the world’s top maker of molds used to make semiconductors, may exceed its 2 billion yen ($22 million) forecast for sales of equipment used in LED production in the year ending March 31. “There’s a tangible increase in molding machine orders from domestic and overseas clients,” Senior Executive Officer Hisao Nishimura, 57, said in an interview yesterday in Kyoto. Demand for LEDs, which are used in high-definition televisions, is rising as electronics makers ramp up production ahead of Japan’s scheduled July 2011 end of analog TV broadcasts. The Nikkei newspaper reported in July that only 61 percent of households own sets capable of receiving digital signals. Sony Corp. said last week it will promote sales of televisions with back lights using LEDs and forecast that the overall LCD TV market in Japan may grow as much as 50 percent in the year-end shopping season compared with last year.

Wall Street Journal:

- Some rank-and-file Senate Democrats are voicing concerns about sweeping health legislation being crafted by Senate Finance Committee Chairman Max Baucus, citing what they describe as excessive burdens placed on some families and concerns over financing for the $880 billion package. The Montana Democrat intends to introduce the package Wednesday, setting the stage for Finance Committee action next week. "We're on track," Sen. Baucus said Monday. The senator has worked for months to craft a bill capable of attracting bipartisan support. His legislation would expand coverage to tens of millions of Americans but leave out a public health-insurance option supported by liberals. Sen. Baucus has argued that steering the legislation toward the political center is the best strategy for ensuring passage on the Senate floor. But several Senate Democrats left a briefing with the chairman Monday night saying they would seek changes.

- Even though stocks are up nearly 50% since early March, worries about valuations, the dollar, inflation and corporate profits permeate market chatter -- chatter so loud you can barely hear all the good news.

- The Obama administration's decision to impose tariffs on imports of Chinese tires Friday has been met with a swift and sharp response: China has threatened to retaliate by imposing tariffs on imports of automobiles and chicken meat from the U.S. These measures are of course symbolic and amount to political posturing for the benefit of domestic audiences. But both governments are playing with fire—unless they douse the protectionist flames quickly, they could find things spiraling out of control. The U.S. administration has backed itself into a corner, promising to be tough on trade and using this as a bargaining chip to strengthen political support for its other domestic priorities. The U.S. may well be on firm ground by the letter of the law in seeking temporary "safeguards" protection from certain Chinese imports, a technical provision that was part of China's accession agreement to the World Trade Organization in 2001. The problem is that these technical issues are difficult to disentangle from purely protectionist measures, especially in the public eye. Hence, symbolic measures to get tough on China mainly serve as an excuse for China to impose its own explicit protectionist measures or bring implicit measures out in the open.

- Online shopping company Inc. plans to launch a Web site targeting bulk purchases by businesses on Oct. 31. The move comes as other e-commerce companies, including Chinese trading site Ltd., also search for growth in the market for U.S. business supplies and inventory.

- The nation's top accounting rulemaker suggested Monday the U.S. may end up taking a tougher stance than international rulemakers on expanding the use of fair-value accounting. The Financial Accounting Standards Board is weighing a plan to require U.S. companies to value most financial instruments by the ups and downs of the market - notably loans, which make up much of banks' assets. That's more stringent than an International Accounting Standards Board plan to allow non-U.S. banks to value loans at adjusted historical cost - a higher number that would give banks higher shareholder equity than under FASB's plan. The two boards have been trying to "converge" their differing sets of accounting rules and work toward one set of rules to apply to companies worldwide. But FASB Chairman Robert Herz said that would be hard in this case, and left open the possibility that it ultimately might not happen here.

- United Airlines(UAUA), seeking new ways to boost revenue, is offering passengers the chance to buy packages of perks that are enjoyed free of charge by its elite frequent fliers. The two new options, dubbed Premier Travel and Premier Travel Plus, allow passengers to buy at a single price such conveniences as access to roomier economy seats, speedier security lines, earlier boarding and free checked luggage.

- Government Medicine vs. the Elderly. Rarely has the Atlantic seemed as wide as when America's health-care debate provoked a near unanimous response from British politicians boasting of the superiority of their country's National Health Service. Prime Minister Gordon Brown used Twitter to tell the world that the NHS can mean the difference between life and death. His wife added, "we love the NHS." Opposition leader David Cameron tweeted back that his plans to outspend Labour showed the Conservatives were more committed to the NHS than Labour. This outbreak of NHS jingoism was brought to an abrupt halt by the Patients Association, an independent charity. In a report, the association presented a catalogue of end-of-life cases that demonstrated, in its words, "a consistent pattern of shocking standards of care." It provided details of what it described as "appalling treatment," which could be found across the NHS. A few days later, a group of senior doctors and health-care experts wrote to a national newspaper expressing their concern about the Liverpool Care Pathway, a palliative program being rolled out across the NHS involving the withdrawal of fluids and nourishment for patients thought to be dying. Noting that in 2007-08, 16.5% of deaths in the U.K. came after "terminal sedation," their letter concluded with the chilling observation that experienced doctors know that sometimes "when all but essential drugs are stopped, 'dying' patients get better" if they are allowed to.
- At a time when many retailers are shutting store locations, Toys 'R Us is making a bold move of boosting its retail presence during its most critical selling season. The toy retailer is expected to announce that it will open 350 "Holiday Express" stores by early October. This significant expansion will include more than 80 Holiday Express "pop-up" stores, which temporarily will open nationwide in malls and other shopping centers, and more than 260 Toys 'R Us Holiday Express shops within the company's Babies 'R Us stores. "We're aggressively expanding our toy-selling footprint to make Toys 'R Us more accessible than ever for busy shoppers this holiday season," said company Chairman and CEO Jerry Storch.

NY Times:

- The Senate voted on Monday to forbid Acorn, the antipoverty group frequently criticized by conservatives, from receiving federal housing grants from the Department of Housing and Urban Development. The vote is the latest jolt of bad news for the group, formally known as the Association of Community Organizations for Reform Now. The Census Bureau announced last week that it no longer wanted Acorn’s assistance for the 2010 census, while a hidden camera recently caught members of the group giving tax advice to people who said they wanted to run a brothel. The provision, which passed 83-7, was introduced as an amendment to a housing and transportation spending bill by Senator Mike Johanns, Republican of Nebraska, who said on the Senate floor that Acorn had received $53 million in federal funds since 1994. “This is a strong message by the Senate, and I hope this vote, which rises above partisanship to do what is right, becomes the rule rather than the exception,” Mr. Johanns said in a statement released after the vote. “I will continue to work to see that Americans’ tax dollars will not go to support fraudulent organizations or activities.” The House passed a version of the spending bill in July that does not deny Acorn access to the federal funds.

Washington Post:

- President Obama will appear on five Sunday talk shows this weekend, a senior administration official said Monday, becoming the first president to do so as he attempts to maintain momentum for his health care overhaul. In making the rounds -- appearing on NBC, ABC, CBS, CNN and Univision back-to-back -- Obama will do a modified version of "the Full Ginsburg," as such a sweep was dubbed after Monica Lewinsky's lawyer, William H. Ginsburg, became the first person to do five broadcast shows it in 1998. It is rare for a president to appear on a single Sunday show, let alone multiple ones. (The original "Full Ginsburg" included Fox News, which was cut out of the loop this time and replaced with the Spanish language Univision). The appearances will cap a week of multiple trips and speeches for Obama, suggesting that White House officials are not concerned with the potential of his overexposure.

Seeking Alpha:

- It's been a while since I have posted charts of swap spreads. I relied heavily on this forward-looking indicator of systemic risk last October and November, when I asserted that they were telling us that the worst had passed and that we should look forward to an improvement in the economy and the markets in the months to come. Swap spreads have done a terrific job over the years of reacting early to emerging systemic problems (note how they rise well in advance of recessions), and reacting early to the unwinding of these systemic problems (note how they fall well in advance of the end of recessions). Currently, swap spreads are just about where they should be during times of relative tranquility in the markets and the economy. They tell us that the storm passed many months ago, and that conditions should continue to improve in the months ahead. Swap spreads are good indicators not only of systemic risk, but also of counterparty risk, the market's appetite for risk-taking, and the market's general liquidity. Today they tell us that all of those important things are going to be normalizing in the future. This is undoubtedly one of the reasons that the equity market has been rising since early March. The U.S. economy is getting back on track, despite all the bad policies coming out of Washington these days (e.g., tariffs on Chinese tires, massive deficit spending, promises of higher taxes, increased regulation of healthcare, etc.), and despite all the concerns still out there (e.g., the coming wave of foreclosures, the 10% unemployment rate).


- Brazil'S oil giant Petrobras(PBR) will boast crude reserves of 30 billion to 35 billion barrels within three years, thanks to huge finds in deep water off the nation's coast, the company's CEO said on Monday. That's enough oil to supply global demand for more than 400 days at current rates. Gabrielli said that Petrobras expected to have seven drilling rigs in the Santos basin by the end of the year, and that he expected current drilling costs of $100 million per well to decline in the future. He added that Petrobras had found a production rate of 50,000 barrels per day at one well in the Guara block. "That's a lot," Gabrielli said. "We don't know if each (subsalt well) can produce that much."

Financial Times:

- Happiness, long holidays and a sense of well-being may not be everyone’s yardstick for economic performance, but Nicolas Sarkozy believes they should be embraced by the world in a national accounting overhaul. France’s president on Monday urged other countries to adopt proposed new measures of economic output unveiled by a panel of international economists led by Joseph Stiglitz, the US Nobel Prize winner. One consequence of the commission’s proposed enhancements to gross domestic product data would be to improve instantly France’s economic performance by taking into account its high-quality health service, expensive welfare system and long holidays. At the same time, the commission’s changes would downgrade US economic output. The commission suggested a series of improvements to the way GDP was measured. It proposed accounting for people’s well-being and the sustainability of a country’s economy and natural resources. Mr Stiglitz and Jean-Paul Fitoussi, co-author, said a more comprehensive method for measuring performance would cut the per capita GDP gap between the US and France by at least half. US per capita GDP is 14 per cent higher than France’s. Although the commission did not work out the effects of its proposals on different countries, Mr Stiglitz said the changes would bring “a number of major adjustments”.


- America’s top diplomat at the United Nations mission in Afghanistan has been ordered out of the country after a row with his boss over how to respond to last month’s fraud-riddled presidential elections, it has been alleged. The alleged quarrel is threatening to spark a mutiny within the UN mission. At least a dozen senior staff are backing the American, Peter Galbraith, in the dispute with his Norwegian superior, Kai Eide.

Late Buy/Sell Recommendations

- Reiterated Buy on (NKE), target $65.

Night Trading
Asian Indices are -.25% to +.75% on average.

Asia Ex-Japan Inv Grade CDS Index 123.50 -2.0 basis points.
S&P 500 futures -.25%.
NASDAQ 100 futures -.28%.

Morning Preview

BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

U.S. Equity Preview

TradeTheNews Morning Report In Play

SeekingAlpha Market Currents Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/EPS Estimate
- (ADBE)/.33

- (BBY)/.41

- (CBRL)/.95

- (KR)/.44

Economic Releases

8:30 am EST

- The Producer Price Index for August is estimated to rise .8% versus a -.9% decline in July.

- The PPI Ex Food & Energy for August is estimated to rise .1 versus a -.1% decline in July.

- Advance Retail Sales for August are estimated to rise 1.9% versus a -.1% decline in July.

- Retail Sales Less Autos for August are estimated to rise .4% versus a -.6% decline in July.

- Empire Manufacturing for September is estimated to rise to 15.0 from 12.08 in August.

10:00 am EST

-.Business Inventories for July are estimated to fall -.9% versus a -1.1% decline in June.

Upcoming Splits
- None of note

Other Potential Market Movers
The Fed’s Bernanke speaking on the financial crisis, weekly retail sales reports, ABC consumer confidence reading, BMO Capital Media & Telecom Conference, Jeffries Technology Conference, Morgan Stanley Healthcare Conference, JPMorgan Diversified Industries Conference, UBS Paper Conference, Keybanc Basic Materials Conference, Deutsche Bank Tech Conference, Think Equity Growth Conference, CSFB Chemical Conference, Goldman Sachs Communacopia Conference and the Barclays Financial Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by mining and technology 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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