Thursday, December 24, 2009

Thursday Watch

Late-Night Headlines

- Google Inc.’s(GOOG) Android mobile software may offer as many as 150,000 applications by the end of 2010, as the company chases Apple Inc.(AAPL) for downloads, according to a mobile-application research firm. “A lot of developers have come onto the Android platform” because of efforts by Verizon Wireless, Motorola Inc. and Google to promote the system, Flurry Inc. Chief Executive Officer Simon Khalaf said today in an interview. Flurry, based in San Francisco, is a firm that studies applications and their use.

- Sanofi-Aventis SA’s $1.9 billion bid for Chattem Inc., announced this week, was leaked in advance to two French investors who reaped $4.2 million by making illegal insider trades, U.S. regulators claimed in a lawsuit. Nicolas Condroyer and Gilles Roger, both 33 and living in Brussels, amassed Chattem call options days before Paris-based drugmaker Sanofi unveiled the deal, then sold the holdings the day it was announced, the Securities and Exchange Commission said in a suit filed at federal court in Atlanta. The SEC didn’t say how they got the information. A judge froze their proceeds. “These two men tried to take advantage of the marketplace and cash in on millions of dollars in illegal trades,” said William Hicks, an attorney at the SEC’s Atlanta office, in the statement. “Fortunately they were caught in the act.”

- A gene linked to asthma susceptibility in children has been identified that may reveal the respiratory disease’s connection to allergies and lead to new treatment for 6 million U.S. child asthmatics, a study said.

- Treasury 10-year notes will see an increase in demand from individual investors when their yield reaches 3.90 percent, according to William O’Donnell, U.S. government bond strategist at Royal Bank of Scotland Group Plc. The yield level would mean that 15- to 20-year zero-coupon Treasuries would offer yields of about 5 percent, he said. When the 10-year note reached 3.89 percent on Aug. 10, it attracted an influx of demand from mutual funds, pension funds and individuals, O’Donnell said in an interview on Bloomberg Radio. “That could bring out the buyers to help support the long end of the Treasury curve,” said O’Donnell, who works at Stamford, Connecticut-based RBS Securities Inc., one of 18 primary dealers that trade with the Federal Reserve. “On August 10, August 11 they came out of their shoes to buy Treasury paper at that level. They want risk-free rates and they want them at 5 percent.”

- Venezuelan President Hugo Chavez ordered an investigation of Toyota Motor Corp. and said the world’s largest carmaker “can leave” if it doesn’t comply with production quotas and technology-transfer laws.

Wall Street Journal:

- The top regulator for Fannie Mae and Freddie Mac is expected to announce on Thursday millions of dollars in pay packages for top executives at the government-run mortgage-finance titans, people familiar with the matter said. The Federal Housing Finance Agency approved multimillion-dollar pay packages for Fannie Mae Chief Executive Michael Williams and Freddie Mac CEO Charles Haldeman Jr., and those packages are expected to be in a range of $4 million to $6 million, people familiar with the matter said. The Christmas Eve announcement is likely to provoke a fresh round of controversy concerning the federal government's role in the two troubled companies. Taxpayers have pumped billions of dollars into both firms to keep them from collapsing amid the housing bust. Separately, the Obama administration, in the next few days, is expected to announce a new financial commitment by the federal government to both Fannie and Freddie as a signal to the markets that the government stands by both the companies. Fannie and Freddie were chartered by Congress to provide liquidity to the housing market, and they were seized by the FHFA last year as the collapsing housing market forced both companies to take significant losses. Since government control of the companies began, both of them have operated as wards of the state, primarily to advance public and social housing goals set by policy makers. A proposal for a new financial commitment and the executive-compensation disclosures could create an uproar on Capitol Hill, as Republicans have complained for months that the Obama administration hasn't defined a long-term strategy for the companies or a path for the government to exit from ownership.

- With the Senate set to pass its health bill on Christmas Eve, President Barack Obama is planning to step up his involvement in the final health-care legislation, White House and congressional officials say. At the same time, Republicans have ratcheted up their attacks on the legislation and begun approaching conservative Democrats to switch parties, in the wake of this week's unexpected defection of Democratic Rep. Parker Griffith of Alabama. Administration officials want what they view as must-have pieces in the final bill to be hashed out in January by House and Senate negotiators. To help pay for expanded coverage, they favor the Senate's tax on high-cost plans over the tax on the wealthy the House approved . The White House is pushing for a strong independent panel to assess Medicare spending and recommend cuts to Congress, according to administration and congressional officials. That is in the Senate bill but not the House version. Mr. Obama "will be taking a more active role," said White House health official Nancy-Ann DeParle.

- The Real Price of the Senate Health Bill. Pushing health-care reform through the Senate will hurt Democrats.

- What Doctors and Patients Have to Lose Under ObamaCare. Changes to Medicare will give the feds control of surgical decisions.

- American International Group Inc.(AIG) conducted an investigation into recent actions by its general counsel, who along with four other executives told the insurer this month that they were prepared to resign over federal pay curbs, people familiar with the matter said. The review, which was initiated by individuals within the government-controlled insurer, looked at the circumstances surrounding the actions of general counsel Anastasia Kelly, who had told other executives how to protect their rights to collect severance benefits, the people said.

- The Arkansas state Capitol got a new holiday decoration this year: A plywood kiosk that marks the winter solstice and recommends books such as "The God Delusion" and "Atheist Manifesto." The booth, erected last week under a federal court order, joins more-traditional Christmas decorations at the Capitol in Little Rock, including life-size cutouts of snowmen and an intricately carved wooden Nativity scene.

New York Times:

- Banks Bundled Bad Debt, Bet Against It and Won. In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs(GS) trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm. Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits. Goldman’s own clients who bought them, however, were less fortunate. Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm. Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner. How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment. While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say. One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded. Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created. Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests. “The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.” Investment banks were not alone in reaping rich rewards by placing trades against synthetic C.D.O.’s. Some hedge funds also benefited, including Paulson & Company, according to former Goldman workers and people at other banks familiar with that firm’s trading.

- Liu Xiaobo, one of China’s most prominent advocates of democratic change, was tried Wednesday on charges of subversion, a sign that Chinese leaders are reducing their already limited tolerance for peaceful political dissent. Mr. Liu, an essayist and social critic who has spent more than a year in detention, faces up to 15 years in prison if convicted of charges legally defined as “incitement to subvert state power.” His lawyer said a verdict in the closed trial was likely to be announced on Friday. Charging one of the best-known dissidents with subversion is a disheartening milestone in the eyes of some Chinese legal experts and human rights advocates.

- Only a few years ago, a cry went up that the United States needed more oil refineries. The perceived shortage was so acute that George W. Bush, president at the time, even offered disused military bases as sites for building them. Not only did that never come to pass, but the reverse is now happening. The business of oil refining is mired in a deep crisis, with five refineries having shut down this year, including plants in Delaware, New Jersey, California and New Mexico. Gasoline demand, which many analysts had long expected to keep rising for decades, is down sharply in the recession. And refiners are increasingly convinced that even after the economy recovers, demand will not grow much in coming years because of the rise of alternative fuel supplies and the advent of tougher efficiency standards for automobiles.

Business Insider:

- Congressional Budget Office Says Dems Are Using Accounting Trick To Claim Medicare "Savings."

- David Tepper Is Still Super-Concentrated In Bank of America(BAC), Citigroup(C), And Wells Fargo(WFC).

Business Week:
- Managing the Wireless Data Deluge. Smartphones are forcing wireless carriers to meet surging demand for data, creating a huge opportunity for the many companies that help them.

- Americans, it seems, still have a love affair with the West. Texas and Wyoming were the big winners in the Census Bureau's annual population estimates, which were released on Wednesday. In the year ended July 1, Texas added more people than any other state, and Wyoming had the highest growth rate in the nation.

-Where Americans aren't moving.

- Georgia Gov. Sonny Perdue on Wednesday asked the state attorney general to join seven of his colleagues from other states in investigating a political deal struck to pass a federal health care reform bill. In a letter, Perdue, a Republican, asked Thurbert Baker, a Democrat, to "explore the availability of any legal challenges that Georgia could pursue to oppose this unconscionable scenario." The state's two U.S. senators—Saxby Chambliss and Johnny Isakson, both Republicans—also urged Baker to look into the constitutionality of special exemptions in health care legislation moving in the Democratic-controlled U.S. Senate. Perdue has said the bill, which the Senate is expected to vote on Thursday, would heap additional Medicaid costs on states like Georgia. South Carolina Attorney General Henry McMaster said Tuesday that he and his counterparts in Alabama, Colorado, Michigan, North Dakota, Texas and Washington state—all Republicans—were jointly taking a look at the deal they've dubbed the "Nebraska compromise." The provision, which permanently exempts Nebraska from paying Medicaid costs that other states must pay, helped win Nebraska Sen. Ben Nelson's vote on the massive health care bill.


- The Return Of The Virtuous Cycle. A cascade of positive trends will help heal the economy in 2010.


- There are few stranger political bedfellows than conservative anti-tax crusader Grover Norquist and liberal blogger Jane Hamsher. But the two joined forces on Wednesday to call for the resignation of White House chief of staff Rahm Emanuel, in a letter they penned to Attorney General Eric Holder. The duo contends that Emanuel’s service on the board of the government-sponsored mortgage company Freddie Mac from 2000 to 2001 may have given him some knowledge of alleged financial irregularities at the time. Norquist and Hamsher say in a letter to Holder that “stonewalling by Mr. Emanuel and the White House” leave them “no redress” other than to call for his resignation. Norquist is the head of the conservative group Americans for Tax Reform, and Hamsher is the publisher of the liberal blog Firedoglake.

- Republicans are stepping up their efforts to persuade more House Democrats to switch parties and are zeroing in on a second-term Pennsylvanian who acknowledged the efforts but said he has "no plans" to do so. Democratic Rep. Chris Carney received a phone call Wednesday from Sen. John McCain (R-Ariz.) asking him to consider becoming a Republican, a top GOP official told POLITICO.


- Just 29% of U.S. voters now say the country is heading in the right direction, the lowest level measured since early February, according to the latest Rasmussen Reports national telephone survey. The percentage of voters who felt the country is heading in the right direction remained in the narrow range of 31% to 35% from July to early November.


- This Christmas and New Year, the auto industry is worried about the orphans.

There are about 3 million of them: Customers who either lost their dealer because of closings in 2009 or whose current car brand is going out of business. And it's pitting carmakers and car dealers against one another as they fight for who'll win that business.


- President Barack Obama's commitment to close the U.S. detention center at Guantanamo Bay, Cuba, by next month may be delayed until 2011 because it will take months for the government to buy an Illinois prison and upgrade it to hold suspected terrorists. The drawn-out construction timetable shows the political risk of Obama's pledge, a delay that could even be extended by congressional opposition to funding the purchase and upgrades for the Thomson Correctional Center, an underused state facility about 150 miles west of Chicago. Lawmakers in both parties have been wary of bringing detainees to the United States. Attorney General Eric Holder already has decided that self-declared 9/11 mastermind Khalid Sheikh Mohammed and four others will be tried in federal court in New York City. In the Senate, a spokesman for Republican leader Mitch McConnell promised that the GOP would use delaying tactics to prevent funding the Illinois facility and added that he expected support from Democrats. "I think there will be bipartisan opposition" to bringing detainees to Illinois, Donald Stewart said.


- Apple Inc (AAPL) has reserved space in late January at a venue in San Francisco in advance of a planned product announcement, the Financial Times reported on its blog on Wednesday. The company has rented a stage at the Yerba Buena Center for the Arts and is expected to make a "major product announcement" on Tuesday, Jan. 26, the report said, citing people familiar with the plans.
- U.S. junk bond mutual funds reported $388 million in net inflows in the week ended Dec. 22, down from $415 million the previous week, AMG Data Services reported on Wednesday. Junk bonds have rallied nearly nonstop since March, posting year-to-date returns of more than 56 percent, their best-ever performance, according to Merrill Lynch indexes. The previous record was 39.2 percent for full-year 1991.

Financial Times:

- Bankers turn bullish about bid activity in 2010. It did not take long for mergers and acquisitions bankers to start talking up a recovery. Following two years of depressed levels of worldwide deal activity, bankers have turned bullish about a pick-up next year, encouraged by rising equity markets and lower valuations. Six deals in November worth a combined $135bn (£84.6bn) gave evidence of improved boardroom confidence. "M&A has really returned," said Paul Parker, global head of M&A for Barclays Capital. "In the second half of this year, and really, the last quarter, we've moved from hearing the drumbeats to actually seeing the invasion." Finding the financing for acquisitions has certainly become easier of late. While bank lending is still expensive, the bond markets are open and companies with investment-grade ratings such as Pfizer, which this year bought Wyeth for $68bnWyeth, chose to tap investors directly. Hopes are also resting on improved private equity action as buy-out groups quit investments they have held for three to five years. Greg Peterson, partner at PwC Transaction Services, said there was still more than $1,000bn of capital committed to alternative investment funds on the sidelines, waiting for appropriate opportunities. "The diversified private equity players have been bulking up their debt, hedge and distressed funds to take advantage of opportunities in distressed," Mr Peters said.

- As US senators prepare to vote on the healthcare reform bill on Thursday, an unlikely casualty of one of Barack Obama’s keystone policies has now emerged: tanning salons. A 10 per cent sales tax on salons that use sunbeds was slipped into the bill at the last minute, replacing a tax on cosmetic procedures such as Botox injections, which became known as the “Bo-tax”. Tanning salon owners were caught off guard and say that it will put them out of business by pinching their lower-income customers who are already hurting from the recession. “We’re in shock,” said Kathe Ray, owner of Absolute Tan & Spa in Livonia, Michigan. “If this goes in and I lose customers I’m going to have to close my doors.” Business is down 50 per cent from a year ago. Ms Ray has already halved her staff and said the tax would put her on the brink of bankruptcy.

21st Century Business Herald:

- China may cut personal income taxes next year to help increase individual earnings and maintain continued economic growth. The government may also cut taxes for small and medium-sized businesses and for technology companies.

Late Buy/Sell Recommendations


- Bull of the Day: Intuitive Surgical's(ISRG) story is improving. A new product was developed as an upgrade to its da Vinci Surgical System. Furthermore, the company enjoys a virtual monopoly in robotic surgery without direct competition. The company's razor/razor blade business model ensures recurring revenues even during difficult times. In the third quarter, earnings of $1.64 per share were higher than the Zacks Consensus Estimate of $1.45. Revenue growth was witnessed across all the segments. We believe the company will continue leveraging its monopoly position in the industry. We reiterate our Outperform recommendation with a target price of $329.

Night Trading
Asian Indices are +.25% to +1.50% on average.

Asia Ex-Japan Inv Grade CDS Index 96.0 unch.
S&P 500 futures +.06%.
NASDAQ 100 futures +.07%.

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
- None of note

Economic Releases

8:30 am EST

- Durable Goods Orders for November are estimated to rise +.5% versus a -.6% decline in October.

- Durables Ex Transports for November are estimated to rise +.5% versus a -.6% decline in October.

- Initial Jobless Claims for last week are estimated to fall to 470K versus 480K the priro week.

- Continuing Claims are estimated to fall to 5170K versus 5186K prior.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity 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.

No comments: