Wednesday, December 30, 2009

Thursday Watch

Late-Night Headlines

- GMAC Gets $3.79 Billion Boost in Third US Bailout Package. GMAC Inc., the auto and home lender bailed out twice by the U.S. government, received a third rescue package valued at $3.79 billion that gives taxpayers a majority stake in the Detroit-based company. The infusion will bolster lending at GMAC as it absorbs $3.8 billion in new pretax charges and decides what to do with its loss-plagued home mortgage unit, according to statements from the agency and the company yesterday. The aid comes on top of about $13.5 billion previously earmarked for GMAC, which regulators have said is crucial to the U.S. auto industry. Chief Executive Officer Michael Carpenter is struggling to return the lender to profitability amid losses at the Residential Capital mortgage unit, known as ResCap, which GMAC may close or sell. GMAC is the primary lender to General Motors Co. and Chrysler Group LLC, the automakers that went into bankruptcy during the recession.

- American International Group Inc.(AIG) general counsel Anastasia Kelly, who resigned after a dispute over government-imposed pay limits, will reap about $3.8 million in severance, said people familiar with the matter. AIG concluded that Kelly, 60, was owed the money after the New York-based insurer hired a law firm to review her conduct, according to the two people, who declined to be identified because the company hasn’t announced the decision. Kelly resigned for “good reason” after her salary was cut, AIG said today in a statement. Suzanne Folsom, the company’s chief compliance officer, also left, AIG said. Kelly told at least four other executives last month how to protect their pay and hired outside attorneys for advice, the people said. The five leaders wrote in Dec. 1 letters to AIG that they were prepared to resign if their pay was cut by Kenneth Feinberg, the Obama administration’s special master for executive compensation. AIG, once the world’s biggest insurer, received a taxpayer-funded bailout valued at $182.3 billion, placing the company under Feinberg’s jurisdiction. “General counsel are supposed to be setting a prime example of good ethics at a company, not acting as carpetbaggers as they leave,” Frank Glassner, chief executive officer of Veritas Executive Compensation Consultants LLC, said today in an interview. “This severance pay is ridiculous.” Folsom, a former director of the World Bank in charge of an anti-corruption unit who was hired by Kelly in April 2008, will collect more than $1 million in severance, the people said.

- President Barack Obama or top administration officials met at the White House with Goldman Sachs Group Inc.(GS) Chairman Lloyd Blankfein, Microsoft Corp.(MSFT) co- founder Bill Gates and World Bank President Robert Zoellick, records show. Blankfein and Gates met with economic adviser Lawrence Summers, while Zoellick met with the president. The visits were among more than 27,000 added to the White House Web site as part of a periodic release of visitor logs that the Obama administration and its predecessors had sought to keep private. Steven Rattner, the former private equity executive and automotive adviser to the Obama administration, visited the White House more than 50 times between the January inauguration and mid-July, often to visit Summers. The watchdog group Citizens for Responsibility and Ethics in Washington pressed for release of records showing who was meeting with administration officials. In July, the group sued to force the Secret Service to release information about visits by coal company executives since Obama took office in January. The information is being made public at the end of each month.

- Pacific Investment Management Co., the world’s largest manager of bonds, filed with U.S. regulators to start a stock mutual fund that can also invest in bank loans, junk bonds and distressed securities. Pimco Global Opportunities Fund will buy securities and financial instruments “economically tied” to at least three countries, one of which may be the U.S., according to a registration statement filed today with the U.S. Securities and Exchange Commission. The fund will be able to purchase shares in companies of all sizes.

- News Corp.(NWS/A) said it’s not likely to reach an agreement with Time Warner Cable Inc. and expects to pull Fox broadcasting from the cable system when their deal expires tomorrow. “We deeply regret that millions of Fox customers will be deprived of our programming,” Chief Operating Officer Chase Carey said today in a memo to employees. “We need to receive fair compensation from Time Warner Cable to go forward.”

- The Federal Deposit Insurance Corp. plans to seek stakes in the companies bidding for seized banks, aiming to gain when the shares rise and helping recoup the costs of closing lenders. The arrangement would let the agency share any profits from an increase in the buyer’s stock after a takeover, said James Wigand, the FDIC’s deputy director of resolutions and receiverships.

Wall Street Journal:

- Behind the drama unfolding in the streets of Iran, the regime is quietly clamping down on some of the nation's best students by derailing their academic and professional careers. On Wednesday, progovernment militia attacked and beat students at a school in northeastern Iran. Since last Sunday's massive protests nationwide, dozens of university students have been arrested as part of an aggressive policy against what are known as Iran's "star students." In most places, being a star means ranking top of the class, but in Iran it means your name appears on a list of students considered a threat by the intelligence ministry. It also means a partial or complete ban from education. The term comes from the fact that some students have learned of their status by seeing stars printed next to their names on test results. Mehrnoush Karimi, a 24-year-old law-school hopeful, found out in August that she was starred. She ranked 55 on this year's national entrance exam for law schools, out of more than 70,000 test-takers. That score should have guaranteed her a seat at the school of her choice. Instead, the government told her she wouldn't be attending law school due to her "star" status.

- Eight Americans, including officers of the Central Intelligence Agency, were killed in a suicide attack on a U.S. compound in Afghanistan, current and former U.S. officials said, in what could be the biggest loss of American intelligence personnel since the war here began. "There was some tremendous talent lost," a former intelligence official said.

- A Cold-Blooded Foreign Policy by Fouad Ajami.

- A Honolulu television station is reporting that conservative radio talk show host Rush Limbaugh was taken to a hospital with chest pains. KITV reported Wednesday that paramedics responded to a call at 2:41 p.m. from the Kahala Hotel and Resort where Mr. Limbaugh is vacationing. The station, citing unnamed sources, said paramedics treated Mr. Limbaugh and took him to The Queen's Medical Center in serious condition.

- Anwar al-Awlaki, a radical American-born Yemeni cleric who has surfaced in multiple terror probes, is emerging as a central part of the Christmas Day airline bomber investigation, as authorities focus attention on a network of extremists in Yemen who may have helped radicalize the young Nigerian accused in the failed plot.

- Holdings of U.S. dollars by foreign central banks bounced back to more "normal" levels in the third quarter, according to data released Wednesday by the International Monetary Fund. The IMF's Composition of Official Foreign Exchange Reserves data, known as COFER, is reported voluntarily by 140 countries. Of those who report their holdings, adjusted for currency valuation effects, the share of U.S. dollars bounced up to 62% in the third quarter after an unusual drop to 37% in the previous period, according to Barclays Capital.
- Have Faith in Free-Market Capitalism, Will Prosper.

NY Times:

- YouTube, the video site owned by Google(GOOG), is about 10 times more popular than its nearest competitor. But Hunter Walk still thinks of it as an underdog. For Mr. Walk, director of product management at YouTube, the competition is not other Web sites: it’s TV. “Our average user spends 15 minutes a day on the site,” he said. “They spend about five hours in front of the television. People say, ‘YouTube is so big,’ but I really see that we have a ways to go.” To that end, Mr. Walk leads a team of about a dozen engineers, designers and project managers who are fine-tuning YouTube to give its users what they want, even when the users aren’t quite sure what that is. The goal is to get them to spend a few more minutes on the site every day.


- Investors Could Only Lose in Goldman's(GS) Cayman Deals. When financial titan Goldman Sachs joined some of its Wall Street rivals in late 2005 in secretly packaging a new breed of offshore securities, it gave prospective investors little hint that many of the deals were so risky that they could end up losing hundreds of millions of dollars on them. McClatchy has obtained previously undisclosed documents that provide a closer look at the shadowy $1.3 trillion market since 2002 for complex offshore deals, which Chicago financial consultant and frequent Goldman critic Janet Tavakoli said at times met "every definition of a Ponzi scheme." The documents include the offering circulars for 40 of Goldman's estimated 148 deals in the Cayman Islands over a seven-year period, including a dozen of its more exotic transactions tied to mortgages and consumer loans that it marketed in 2006 and 2007, at the crest of the booming market for subprime mortgages to marginally qualified borrowers. In some of these transactions, investors not only bought shaky securities backed by residential mortgages, but also took on the role of insurers by agreeing to pay Goldman and others massive sums if risky home loans nose-dived in value — as Goldman was effectively betting they would. Some of the investors, including foreign banks and even Wall Street giant Merrill Lynch, may have been comforted by the high grades Wall Street ratings agencies had assigned to many of the securities. However, some of the buyers apparently agreed to insure Goldman well after the performance of many offshore deals weakened significantly beginning in June 2006. Goldman said those investors were fully informed of the risks they were taking. These Cayman Islands deals, which Goldman assembled through the British territory in the Caribbean, a haven from U.S. taxes and regulation, became key links in a chain of exotic insurance-like bets called credit-default swaps that worsened the global economic collapse by enabling major financial institutions to take bigger and bigger risks without counting them on their balance sheets. The full cost of the deals, some of which could still blow up on investors, may never be known.

- had the happiest customers this holiday season, according to a survey from ForeSee Results released Wednesday. The Seattle-based e-commerce giant scored the highest in a customer satisfaction report from online retail consulting firm ForeSee, followed by Netflix (NFLX) and QVC. Apple (AAPL, Fortune 500) and outdoor-gear retailer Cabela's rounded out the top 5 in the survey, which polls 10,000 visitors to the top 40 U.S. retail sites by revenue each November and December.

Business Insider:

- The activist hedge fund Trian Fund Management became the largest shareholder of fund management company Legg Mason(LM), after picking up two million shares on Monday. The New York firm now owns 5.6% of Legg Mason, ahead of Dodge & Cox's (a mutual fund) 5.5%.

- How To Game Cap And Trade, Destroy Jobs, Make Money, And Provide No Environmental Benefit. Conceptually, carbon credits are fine and could have potential, but their current application is horribly flawed. Metal Miner highlights how Cap & Trade can be gamed whereby it destroys developed nation jobs and doesn't protect the environment either.

Business Week:

- Not So Radical Reform. How New Democrats and Wall Street are watering down financial regulation in Congress.

- Five Ways Apple's(AAPL) Tablet May Change the World. The iPad is on the way, and it just might reduce calling costs, cut your commute, and, to the delight of journalists everywhere, pull print media back from the brink.


- Thirteen Republican state attorneys general are threatening to file a lawsuit challenging the constitutionality of the Senate health care bill. In a letter sent to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid Wednesday, South Carolina Attorney General Henry McMaster said he had “grave concerns” about the deal Senate leaders cut with Nebraska Democrat Ben Nelson to secure his crucial vote for the health care package. “The current iteration of the bill contains a provision that affords special treatment to the state of Nebraska under the federal Medicaid program,” writes McMaster. “We believe this provision is constitutionally flawed. As chief legal officers of our states we are contemplating a legal challenge to this provision and we ask you to take action to render this challenge unnecessary by striking that provision.” “In addition to violating the most basic and universally held notions of what is fair and just, we also believe this provision of H.R. 3590 is inconsistent with protections afforded by the United States Constitution against arbitrary legislation,” writes McMaster. Under the terms of the agreement with Nelson, the federal government will pick up the full tab for all new Medicaid enrollees in Nebraska, a deal that’s expected to cost about $100 million over the next 10 years.

- President Barack Obama promised a “thorough review” of the government’s terrorist watch-list system after a Nigerian man reported to U.S. government officials by his father to have radicalized and gone missing last month was allowed to board a Northwest Airlines flight to Detroit that he later tried to blow up without any additional security screening. Yet the individual Obama has chosen to lead the review, White House counter-terrorism adviser John Brennan, served for 25 years in the CIA, helped design the current watch-list system and served as interim director of the National Counterterrorism Center, whose role is under review. In the three years before joining the Obama administration, Brennan was president and CEO of The Analysis Corp., an intelligence contracting firm that worked closely with the National Counterterrorism Center and other U.S. government intelligence, law enforcement and homeland security agencies on developing terrorism watch-lists.

Rasmussen Reports:

- Belief that the bad guys are winning the War on Terror is now at its highest level in over two years, and nearly half of U.S. voters say America is not safer than it was before 9/11. The latest Rasmussen Reports national telephone survey finds that 30% of voters think the terrorists are winning the War on Terror. That’s the first time the number holding that pessimistic view has reached 30% since October 2007. Just 18% believed the terrorists were winning the week President Obama took office in January. At that time, 55% said America and its allies were on top. Now, just 36% say the United States and its allies are winning the War on Terror. Only once since July 2007 have voters had less confidence.

- claims to have received confirmation from a "source inside Apple" that the company will in fact be holding a media event on January 26th in San Francisco. According to the source, the "big" event will focus on the "mobility space", suggesting an iPhone, iPod touch, or, as many people expect, tablet announcement. Anticipation has continued to build as Apple appears to be coming closer to the long-rumored release of its tablet device. While the company has remained silent about any possible launch of such a device, rumors and tidbits of information, including recent discoveries suggesting that the device may be called the iSlate or iGuide, have fed the frenzy of anticipation. Earlier this week, Cloned in China pointed to a Chinese-language article[Google translation] about a blog post apparently from former Google China president Kai-Fu Lee claiming that device will in fact be introduced in January at a price point of under $1000 and will carry a 10.1" multi-touch screen and offer an "amazing user interface", video conferencing capabilities, and e-book offerings in a package described as a "large iPhone". Lee also claims that Apple is expecting first-year sales of 10 million units, far above most observers' expectations at this time. Lee theoretically could be in a position to have information about the Apple tablet, as his current venture capital company has attracted Apple manufacturing partner Foxconn as an investor. Furthermore, Lee was an executive at Apple during the early 1990s and oversaw development of the Apple Newton handheld device among other projects. Later in the decade, after a stint at SGI, Lee was reportedly personally invited back to Apple by Steve Jobs despite the two never having spoken before, an offer Lee declined in order to return to his native China with Microsoft.


- Risk Manager. Caught in the cross fire between Main Street and Washington, BlackRock's(BLK) Larry Fink must protect his profits and his firm's reputation.

- Monsanto's(MON) first round of attackers said its seeds were evil. Now the charge is that Monsanto's seeds are too good.

- Genomics is just starting to improve human health. But it has revolutionized dairy farming.


- Expect Senate majority leader Harry Reid to lose his effective 60-seat supermajority and Nancy Pelosi to hand the House back to the Republicans. Here’s why 2010 is looking like 1994 all over again:

- U.S. health officials released standards for electronic medical records on Wednesday, seeking to spur the technology in hopes of cutting health costs and reducing medical errors. Congress required the standards, partly as a condition of about $19 billion in February's economic stimulus bill that is aimed at encouraging doctors and hospitals to convert paper records into digital files.

- Venture capital investors spent 36 percent less this year on clean technology for a total of nearly $5 billion, an industry group reported on Wednesday.

- U.S. chicken producer Pilgrim's Pride Corp PPC.DE said on Wednesday it will pay $4.5 million over three years to settle U.S. government allegations that it employed illegal workers at some of its plants.

Financial Times:

- The alleged Christmas day terrorism plot has complicated plans by Barack Obama, US president, to shut the Guantánamo Bay prison camp. Following reports that two former inmates who took refuge in Yemen were behind the botched plot, senators from his own party were among those calling for detainee transfers to be halted pending an investigation into the links between Guantánamo and the Arab nation. “Guantánamo detainees should not be released to Yemen at this time,” said Dianne Feinstein, the senior Democrat on the Senate intelligence committee. “It is too unstable.” Kit Bond, the top Republican on the committee, went further, calling for a rethink of the entire policy. “The question is: are we going to take every step possible to keep our country safe? That means stop releasing Gitmo detainees now,” Mr Bond told The Hill newspaper. As it seeks to fulfill his pledge to close down the prison camp, Mr Obama’s administration has been sending detainees back to their home countries, including six Yemenis who were repatriated the week before Christmas. Even before the Christmas day incident, the administration was wary about transferring Yemenis because of concerns about the country’s instability. About 90 of the 198 inmates still in Guantánamo are from Yemen. Fears increased after a Yemen-based group calling itself al-Qaeda in the Arabian Peninsula (AQAP) said it planned the attack in retaliation for US support of a Yemeni military strike on one of its bases, which killed up to 60 of its members. Umar Farouk Abdulmutallab, the 23-year-old Nigerian charged over the alleged plot, told investigators he was given explosives by al-Qaeda operatives in Yemen, where he had been studying Arabic. The suspected masterminds of the alleged plot were Muhamad al-Awfi and Said Ali al-Shihri, Guan-tánamo inmates who were sent to Saudi Arabia in November 2007 but fled to Yemen in 2008, ABC News reported, quoting US officials. Three senators – Republicans John McCain and Lindsey Graham, and independent Joseph Lieberman – who this week wrote to the White House saying that the transfers were “highly unwise and ill-considered”, described Mr Shihri as “AQAP’s longstanding deputy”. He is thought to have orchestrated a 2008 car bombing of the US embassy in Yemen but could have been killed in a December 24 air strike. The senators said: “Many of the other leaders of AQAP were previously held in Yemeni government custody. However, they escaped in February 2006 from a maximum-security prison in Sana’a.”

- The global hedge fund industry turned in one of its best years of performance in close to a decade in 2009, according to industry data, though managers have yet to fully shake off many of the problems of 2008. The average hedge fund returned 19 per cent to investors in 2009, according to Chicago-based data provider Hedge Fund Research. Other leading hedge fund indices report average returns of between 12 and 18 per cent, after fees. On average, only dedicated short-biased funds, which aim to profit from declines in companies’ share prices, lost money this year, down 20 per cent. But many funds have yet to recoup the losses they suffered in 2008.

- At the peak of the financial crisis late in 2008, a common refrain from bankers and traders was that credit markets were enduring a calamity seen once in a hundred years. In 2009, it appears the returns from three credit strategies also represent a once in century event. ”The magnitude of the markets’ reaction to a crisis gets bigger each time,” says Jason Brady, portfolio manager at Thornburg Investment Management.“The frequency of so-called 100 year events seems to be increasing because the leverage has increased and news flow is very high now,“ he adds. Investors this year have been rewarded handsomely for betting on a normalization in specific parts of the credit markets in the US and Europe, which imploded last year and nearly sank the global financial system. For US financial bonds, the return since their nadir in March is 31 per cent, compared to a gain of 22 per cent for all investment-grade corporates, according to indexes calculated by Barclays Capital.

- The US will impose tough new duties on Chinese steel piping imports, raising tensions with its biggest trading partner and emerging geopolitical rival. With Chinese piping imports worth $2.8bn in 2008, the case is the biggest against China brought before the International Trade Commission, a US trade body.


- Harbinger Capital, the hedge fund run by billionaire Philip Falcone, must answer accusations of fraud and civil conspiracy, a judge in Delaware has ruled.

Evening Recommendations

- None of note

Night Trading
Asian indices are +.25% to +1.0% on avg.

Asia Ex-Japan Inv Grade CDS Index 98.0 +3.50 basis points.
S&P 500 futures +.13%.
NASDAQ 100 futures +.25%.

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
- None of note

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 460K versus 452K the prior week.

- Continuing Claims are estimated to rise to 5100K versus 5076K prior.

Upcoming Splits

- None of note

Other Potential Market Movers
- The NAPM-Milwaukee, Bloomberg Financial Conditions Index, weekly EIA natural gas inventory report and the bond market's early close could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity stocks in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

No comments: