Friday, November 20, 2009

Today's Headlines

Bloomberg:

- Wal-Mart Stores(WMT) sank to the cheapest valuation relative to the S&P 500 in at least 19 years. The ratio between Walmart’s price relative to reported earnings and the S&P 500’s valuation fell to .68 last month, the lowest since at least 1990. It never fell below .85 before July and touched that level just twice previously. The first time, in January 1997, Walmart surged 74% in the next year, more than the S&P 500’s 30% rise. The second time, in November 2007, it rose 26% as the index lost 36%. “The stock is exceptionally cheap,” said Gary Bradshaw, who helps manage $800 million including 400,000 Walmart shares at Hodges Capital Mgmt. “The fact Buffett doubled his position may get the stock going.”

- Leveraged-loan prices are poised for their second straight weekly gain as companies tap banks to finance acquisitions and buyouts at the highest rate since 2007. The S&P/LSTA U.S. Leveraged Loan 100 Index climbed to 84.53 cents on the dollar yesterday, up from 84.4 cents on Nov. 13 and 84.29 cents on Nov. 6. Blackstone Group LP’s Pinnacle Foods Group LLC is seeking to fund most of its $1.3 billion takeover with bank debt and Datatel Inc. will borrow $305 million from Credit Suisse Group AG to back its purchase by investors. Of the $8.8 billion high-yield, high-risk loans lenders are currently arranging, about 80 percent will be used to finance LBOs and mergers, the highest ratio since the worst financial crisis in seven decades took hold two years ago, according to Barclays Capital. Companies are picking loans over bonds as investor demand reduces borrowing costs and U.S. bank lending standards improve amid signs that the economic recovery will extend into 2010.

- Federal Reserve officials are stepping up scrutiny of the biggest U.S. banks to ensure the lenders can withstand a reversal of soaring global-asset prices, according to people with knowledge of the matter. Supervisors are examining whether banks such as JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. have enough capital for the risks they take, how much they know about the strength of their counterparties and whether risk managers have authority to influence bank practices and policies.

- Brazilian President Luiz Inacio Lula da Silva said the U.S. holds responsibility for the crisis in the Middle East and shouldn’t be coordinating peace talks. Negotiations between Israel and the Palestinians ought to be managed by the United Nations, Lula said in an interview with two local radio stations in Salvador, Bahia state, according to an audio file on the presidency’s Web site. “As long as the United States is trying to negotiate peace there won’t be peace, because other participants need to be seated at the negotiating table and talk,” Lula said. “The one who should oversee the negotiations is the United Nations, and that’s why Brazil wants to reform the UN system.”

- Twitter Inc., the Internet company that raised venture financing in September valuing the company at $1 billion, is generating sales of more than $4 million a year. Twitter will start an advertising business in 2010, Chief Operating Officer Dick Costolo said today at a conference in San Francisco.

- Barnes & Noble Inc.(BKS), the largest U.S. bookstore chain, said Nook, its device for reading digital versions of books, sold out its initial production run and won’t ship new purchases until the week of Jan. 4.

- Crude oil fell for a second day as the dollar strengthened against the euro, reducing the appeal of commodities to investors, and equity markets declined. Oil slipped as much as 1.6 percent as the U.S. currency advanced for the third time in four days. “What oil does next depends on U.S. equities and the dollar,” Carsten Fritsch, an analyst with Commerzbank AG in Frankfurt, said by phone. “Fundamentally, the oil price can’t be justified at current levels.” Total U.S. daily fuel demand averaged 18.6 million barrels in the past four weeks, down 4.1 percent from a year earlier, according to an Energy Department report on Nov. 18. Commodities will likely attract a record $60 billion this year as investors seek to diversify their assets, Barclays Capital said in a report. Inflows so far this year are almost $55 billion, more than the previous full-year record of $51 billion set in 2006. Commodity assets under management may rise to $230 billion to $240 billion by the end of the year.

- Asian policy makers are studying capital controls to limit “hot money” inflows that may stoke asset bubbles and force their currencies to appreciate. Officials from India, South Korea and Indonesia are among those expressing concern over overseas capital stoking stock and real estate prices. Indonesia’s central bank is “seriously” studying a limit on inflows to short-term bills, Senior Deputy Governor Darmin Nasution said yesterday. Taiwan last week banned international investors from placing funds in time deposits.

- California, Delaware, South Carolina and Florida registered record rates of unemployment in October as weakness in the labor market stretches from coast to coast and limits the economic recovery. Joblessness rose in 29 U.S. states last month compared with 22 in September, the Labor Department said today in Washington. Michigan had the highest jobless rate at 15.1 percent, followed by Nevada at 13 percent and Rhode Island at 12.9 percent. The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy.

- CommVault Systems Inc.(CVLT), Citrix Systems Inc.(CTXS) and Red Hat Inc.(RHT), whose products are used in corporate data centers, are among the top candidates for acquisitions in the software industry, an analyst said.

- New York state’s credit rating is in jeopardy if spending cuts aren’t made to address the $3.2 billion deficit, Moody’s Investors Service said. “If there is no action taken by the state to close the gap, or if action is taken but is largely one-time in nature,” and the state’s revenue projections for January are accurate, the Aa3 rating and stable outlook would be reviewed for possible downgrade, Moody’s said. The fiscal year ends March 31.


Wall Street Journal:

- Sen. Ben Nelson said Friday he will vote to advance Senate health-care legislation in an initial procedural vote Saturday, saying he would seek a "full and open debate" on the measure. Mr. Nelson (D., Neb.) had withheld his intentions on the test vote, saying he wanted to review the bill before deciding whether to support the procedural motion to allow debate on the bill to begin. But he made clear in recent days he did not consider a vote to allow debate on the bill to be equivalent to supporting the bill itself. Mr. Nelson reiterated Friday that he had not yet committed to supporting health-care legislation in a final vote.

- One of the strongest factors promoting recovery from our 10 post-World War II recessions was an unshakable conviction that, regardless of the immediate trouble, the American economy is fundamentally strong. Based on this underlying confidence, recessions and recoveries roughly conformed to the principle of the bigger the bust, the bigger the boom, and vice versa. Thus real growth in the four quarters following postwar recessions averaged 6.6% and 4.3% over the following five years. As the chief economist for Barclays, Dean Maki, said in this newspaper on Aug. 19, "You can't find a single deep recession that has been followed by a moderate recovery." That may no longer hold. Since the current recession has lasted a record seven quarters—and has been marked by a near-record average GDP decline of 1.8% per quarter—we should be witnessing the start of a powerful and sustained recovery. Yet forecasts of a 2% recovery in growth are only one-fourth as strong as postwar experience suggests. Meanwhile, unemployment sits at a generational high of 10.2%. Why all the pessimism? The source appears to be a growing fear that the federal government is retreating from the free-market economic principles of the last half-century, and in particular the strong growth policies that began under Ronald Reagan.

- Some of the largest shareholders in Goldman Sachs Group Inc.(GS) have urged the Wall Street firm to reduce the size of its bonus pool, arguing that it should pass along more of its blockbuster earnings to investors, according to people familiar with the situation. The investors hold tens of millions of shares in Goldman Sachs, which is on track to make the biggest employee payout in the firm's 140-year history. Their complaints in private conversations with the company and at analyst meetings show how anger over its big-money culture is spilling into the ranks of investors who typically shy away from debates over Wall Street pay. One frustration: Despite record net income and compensation at Goldman as markets rebound and the firm outmuscles weakened rivals for business, analysts expect its 2009 earnings per share to be 22% lower than in 2007 and roughly equal to its 2006 earnings, according to Thomson Financial. The decline is caused by issuing more than 100 million shares in the past year to bolster Goldman's financial position and capital. The shareholders have said that reining in the bonus pool would deliver an upward jolt to per-share earnings and the share price, according to people familiar with the discussions. Some major Goldman shareholders also are concerned about a little-noticed change in the company's financial statements that increased the firm's total head count by adding temporary employees and consultants. The change reduced per-employee compensation, making it look like Goldman employees earn less than they actually do. The figure is a lightning rod for criticism of Goldman because its staff is on pace to earn about $717,000 apiece for 2009. Excluding temporary employees and consultants would increase compensation per employee to about $775,000. In October 2008, Goldman received $10 billion from the U.S. government as one of the first nine recipients of taxpayer-funded capital injections under the Troubled Asset Relief Program. Goldman repaid the money in June but continues to benefit from government help. For instance, it has the ability to borrow from the Federal Reserve. Goldman and other firms won that access after Bear Stearns Cos. collapsed and was sold to J.P. Morgan Chase & Co. Goldman had 576.9 million average diluted shares outstanding in the third quarter, up 29% from a year earlier. As of Sept. 30, the five largest Goldman shareholders were AllianceBernstein LP; a Barclays PLC unit; a State Street Corp. unit;, Wellington Management Co.; and Vanguard Group Inc., according to LionShares, which tracks institutional ownership of publicly traded companies.

- China's banking regulator has ordered a mid-sized Chinese commercial bank to curb its lending for the final two months of this year, according to an internal bank memo seen by Dow Jones Newswires on Friday. The memo, which was circulated to executives at the state-controlled lender Thursday, says the China Banking Regulatory Commission had issued an "urgent notice" for the bank to curb its lending. The memo was shown to Dow Jones Newswires by a bank executive on the condition that his employer not be identified. It isn't clear whether the regulator's instruction is directed at the individual bank, which has had higher-than-average loan growth this year, or is part of a broader effort to control lending risks. The surge in China's loan growth this year, driven by the government's stimulus program, has raised broad concerns about possible asset bubbles and risks to the banking system.

- As Rodney King once said, famously and in a quite different context, "Can we all get along?" Mr. King, the victim of a police beating in Los Angeles, was referring to race relations, of course. But the same plea now could be applied to relations between the Obama administration and the business community. That relationship, once so promising, has given way to an atmosphere of mistrust and suspicion, as evident from the comments of executives this week at The Wall Street Journal CEO Council, a gathering in Washington of about a hundred of the nation's top chief executives. It doesn't have to be this way, and some tentative steps may have been taken at the Council meetings to begin changing the atmosphere. If the tenor persists, though, it has real consequences, especially in missed opportunities to cooperate on jobs, education and the deficit. Today's tone is strikingly different than it was just one year ago, when the Journal first brought together the nation's top CEOs in Washington in the wake of President Barack Obama's election.


NY Times:

- The commander of military forces protecting North America has ordered a review of the costly air defenses intended to prevent another Sept. 11-style terrorism attack, an assessment aimed at determining whether the commitment of jet fighters, other aircraft and crews remains justified.

MarketWatch.com

- With the S&P 500 Index headed to a mild weekly decline, the information-technology sector has borne the brunt of the damage -- but one analyst expects the sector will retain its front-running status into the end of the year.

- The average gold timer is now more bullish than on each of the past four occasions in which the gold market has topped out. This suggests to contrarian analysts that the yellow metal has more than the usual amount of vulnerability to a significant decline.


The Business Insider:

- Executives at Goldman Sachs have been quietly finding ways around the firm-wide holiday party ban, people familiar with the matter say. Several executives who lead business groups inside of Goldman have been organizing holiday dinners for employees, as a way of compensating employees for the loss of holiday parties. The dinners are typically paid for by the executives themselves rather than out of the firm's budget. "It's an important morale booster at a time when lots of Goldman people feel they are constantly under attack," an employee who was invited to one of the dinners told us. It's not clear how widespread this is, although our investigation was able to uncover at least six dinners. They seem to be designed to get around the ban by being organized as dinners rather than parties. Another move is for a group to cooperate with a law firm and get the law firm to sponsor the dinner. In this way, it is Goldman being taken out as a client rather than a Goldman sponsored dinner.

- You've probably heard of the controversial investment schemes buy people's life insurance policies, pay them an annual amount, and then collect money when each people die. If the people die early, and you only end up subsidizing them for a few years, you get big gains. But when people live to be freakishly old, and you end up subsidizing them for a long time before the payoff, it's a big loser. It's somewhat macablre, but not necessarily scandalous. But investors in a Deutsche Bank are alleging fraud, after one fund failed to deliver.


Chicago Tribune:

- United Airlines(UAUA) is close to placing its first aircraft order in more than a decade and has narrowed its search to two groundbreaking airplanes: Boeing's(BA) 787 Dreamliner or Airbus' counterpart, the A350-XWB, sources told the Tribune.
United is being furiously courted by both Chicago-based Boeing Co. and France-based Airbus SAS, sources said, even though the carrier's finances appeared shaky just months ago.


hedgeweek:

- Several prominent hedge fund investors, notably Calpers, have publicly called on hedge fund managers over the course of 2009 to reduce their management and performance fees. According to Preqin, just 24 per cent of institutional investors feel that hedge fund fees at their current level are justified. Approximately 60 per cent of institutional investors feel that hedge fund fees are too high with a further 17 per cent of investors surveyed stating that although fees are coming down, they remain too high.


SeekingAlpha:

- Is Gold in a Bubble? Courtesy of Elliott Wave, we get another measure of gold sentiment: The Daily Sentiment Index (trade-futures.com) has been at, or above 90 percent gold bulls since November 3, a string of 10 straight days. The only other comparable streak of optimism over the past 22 years of data is leading up to the December 2, 2004 gold high when the DSI was at, or above 90 percent for 20 consecutive days. At that time, prices made a high at $458.70, declined over 10 percent, and did not exceed the December 2004 high again for the next 10 months. But during this entire 20 day stretch, optimism never reached the single day extreme that today did, with fully 97 percent of traders optimistic on gold’s future prospects. This time, we expect a larger decline, one that lasts longer too.

IndustryGamers:

- All those unfortunate employees at Pandemic who were canned by EA recently might want to consider applying for Microsoft(MSFT). Numerous listings on Microsoft's jobs page show that the company is hiring for its upcoming Project Natal as well as other game projects at Microsoft Game Studios. It's worth noting that Microsoft is not only looking to add to its Natal team, but it seems the company is also actively hiring to expand the talent within 343 Industries, which is Microsoft's new division devoted to handling all things related to the valuable Halo franchise.


Pensions&Investments:

- The Labor Department has killed a Bush administration rule that would have cleared the way for mutual fund companies to offer direct one-on-one investment advice through their affiliates to defined contribution plan participants.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 27% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-one percent (41%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -14 (see trends).

- Deficit reduction has remained number one for voters ever since President Obama listed his four top budget priorities in a speech to Congress in February. Forty-two percent (42%) say cutting the deficit in half by the end of the president's first term is most important, followed by 24% who say health care reform should be the top priority.


Politico:

- The health care debate has sucked so much oxygen out of the Capitol's chambers that it's been easy to miss another simmering story: Democratic fears about the economy. That pot has finally boiled over, with black caucus members walking out of a Barney Frank financial markup, liberals and conservatives calling for Treasury Secretary Timothy Geithner to resign and a policy victory for none other than Ron Paul on his "audit the Fed" proposal. The tensions show why Democrats want to get the health care debate done as soon as possible — they can then spend much more of 2010, an election year, on jobs and economic reforms. The wave of Democratic grief had been building privately for months, but Hill Democrats had held back on publicly criticizing the Obama presidency. But now, Democrats who see that their economic agenda seems to be flailing and fear getting wiped out in the 2010 congressional elections are going public with a burst of criticism, and much of it has poured out in the past 48 hours. It’s coming from some of the most liberal supporters of the president.

- Sens. Lindsey Graham and Joe Lieberman have been working overtime to craft a climate bill that can attract significant GOP support. But they aren’t exactly scoring points with their mutual best friend in the Senate, John McCain. “Their start has been horrendous,” McCain said Thursday. “Obviously, they’re going nowhere.” McCain has emerged as a vocal opponent of the climate bill — a major reversal for the self-proclaimed maverick who once made defying his party on global warming a signature issue of his career.


Gallup:

- The latest Gallup Daily tracking results show 49% of Americans approving of the job Barack Obama is doing as president, putting him below the majority approval level for the first time in his presidency.


Reuters:

- Afghan President Hamid Karzai is an "unworthy partner" who does not deserve a big boost either in U.S. troops or civilian aid, U.S. House of Representatives Speaker Nancy Pelosi said. Pelosi, a skeptic on sending more troops to Afghanistan, also said in an interview with National Public Radio aired on Friday that there was not strong support among her fellow Democrats in Congress for "any big ramp-up of troops" to oppose resurgent Taliban forces.

- Intuitive Surgical Inc (ISRG) said on Friday it received long-awaited approval to market its flagship da Vinci surgical robot systems in Japan, giving it a lucrative new outlet for its expensive products. "We're very optimistic about the market for Intuitive in Japan," Funtleyder said, calling Japan the world's second biggest market for medical technology after the United States. "We're thinking late 2010, or 2011 before we really start to see a material impact, but it will be material and it will be impactful," Funtleyder said. The da Vinci "is a game changer and it will change the game in Japan," he added.

- A weekly measure of future U.S. economic growth fell to a nine-week low along with its yearly growth rate, but the slouch in figures that recently reached record highs does not signal a rocky recovery, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index slipped to 127.4 in the week to Nov. 13, from an upwardly revised 127.8 the prior week, which was originally reported as 127.3. The index's annualized growth rate also hit a nine-week low of 25.0 percent from 26.1 percent last week, which the group revised higher from an original 25.3 percent. Though the index's gauge of annualized growth has fallen off the highs reached in early October, ECRI Managing Director Lakshman Achuthan said the group maintains its forecast that

the economy is still on the mend. "While WLI growth has eased from the record high set five weeks earlier, it is still pointing unambiguously to a continued economic recovery," said Achuthan.

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