Friday, December 11, 2009

Today's Headlines


- The Standard & Poor’s 500 Index will rally 18 percent to 1,300 next year as the economy recovers and Federal Reserve Chairman Ben S. Bernanke holds down interest rates, said Thomas J. Lee, the chief U.S. equity strategist at JPMorgan Chase & Co. The forecast level represents a multiple of 14.4 times the $90 a share the bank estimates the companies in the index will earn in 2011, equity strategists led by Lee in New York said in a report dated yesterday. “Investors remain too pessimistic regarding the durability and trajectory of 2010 U.S. growth as well as valuation upside,” wrote Lee, whose projection that the S&P 500 would end this year at 1,100 tied him with Goldman Sachs Group Inc.’s David Kostin as the most accurate of eight strategists tracked by Bloomberg. “It is a mistake to wait for a correction.” Lee said there’s a 95 percent chance U.S. stocks will rally in the next 12 months based on his analysis of the last 19 bull markets that lasted nine months. The S&P 500’s advance will probably last for years rather than months, helped by improving access to credit for households and small businesses, pent-up consumer demand and a rebound in employment, Lee said.

- “It’s been a very good week for GDP,” said Jay Feldman, an economist a Credit Suisse in New York. “We’ve had a very abrupt swing in inventories, and trade will be a modest plus rather than a modest drag.” Credit Suisse today raised its forecast for gross domestic product this quarter to a gain of 4.5 percent at an annual rate from the 3.5 percent pace projected at the start of week. Stockpiles alone will contribute almost 3 percentage points to growth, Feldman said. Companies have cut inventories for the past six quarters, and reductions reached a record annual pace of $160.2 billion from April through June. A smaller cutback last quarter contributed 0.9 percentage point to the economy’s 2.8 percent pace of expansion last quarter. A 4.5 percent rate of growth would make this quarter the strongest in almost four years. Economists surveyed earlier this month projected a 3 percent pace of expansion from October through December, according to the median estimate.

- The cost of protecting European corporate bonds from default fell to the lowest in 18 months as a surge in China’s industrial output and forecasts of increased U.S. retail sales boosted confidence in an economic recovery. Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declined as much as 9.5 basis points to 479, the lowest since June 2008, and were trading at 481.5, according to JPMorgan Chase & Co. prices at 10:06 a.m. in London.

- Crude oil tumbled for an eighth day, the longest stretch in six years, as the dollar rose against the euro, curbing investor appetite for commodities. Oil fell to a two-month low after the greenback advanced on speculation the Federal Reserve will increase borrowing costs next year because of an improving economy. Prices have dropped 11 percent in eight days on the dollar’s strength and rising U.S. fuel inventories. “Market sentiment has shifted, and is now focused on the weak fundamentals.” “If the dollar continues to strengthen, we are going to see more of the financial interest leave commodities,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Fuel supplies are very high in the U.S. and demand is weak.” “For some traders there’s anxiety that distillate supplies won’t come down quickly, or at all,” Kirsch said. “There’s the possibility of a much stronger move downward in prices.” “The continuing builds at Cushing are definitely having an impact on prices,” Mueller said. “I don’t think OPEC ministers are going to do very much when they meet on Dec. 22 in Angola,” said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. “The IEA said all 11 members with quotas were producing above quota, so I don’t expect there to be any lectures behind closed doors on compliance. Everyone is doing it.” “I’m expecting energy to fall through the first quarter and the first half of the second quarter,” said Bill Adams, chief energy trader at Intermarkt Investment Strategists, a risk management company in Zurich. “Capacity hasn’t tapered off in any meaningful way, and if Nigeria comes back online, there’s even more” supply coming onto the market.

- House Majority Leader Steny Hoyer said the chamber will vote next week on increasing the U.S. debt limit by $1.8 trillion or $1.9 trillion. Hoyer said the increase will be added to a Defense Department spending measure. Also to be added will be infrastructure spending, a six-month extension of unemployment benefits, and subsidies to help jobless people buy health insurance through their former employer, said Hoyer of Maryland. Hoyer didn’t say how much those items would cost. He said lawmakers haven’t decided whether to attach legislation extending the estate tax beyond its Dec. 31 expiration.

- Kenneth Feinberg, the Obama administration’s special master for executive pay, set $500,000 salary limits for employees at four companies that received “exceptional” U.S. bailout funds. Citigroup Inc., American International Group Inc., General Motors Co. and GMAC Inc. will be subject to today’s rulings, which govern 2009 compensation for the 26th through 100th highest-paid workers at the firms. The limits, which only apply for the remainder of this year, are likely to affect annual bonuses, Feinberg said at a briefing.

- Carlyle Group and Goldman Sachs Group Inc.(GS) are asking investors to pay more than $1 billion for a deepwater-oil explorer with no revenue or profits in the industry’s biggest U.S. initial public offering this decade.

- The closure of refineries on the US East Coast representing nearly 20% of the region’s capacity is driving profit margins higher. Refineries on the East Coast, or PADD 1, processed 1.02 million barrels of crude a day last week, 24% below a year earlier and the least since April, according to the Energy Dept.

- European Union leaders said government measures to stimulate the economy should stay in place until the “recovery is fully secured.” “Forecasts suggest a weak recovery in 2010, followed by a return to stronger growth in 2011,” heads of the 27-nation EU said in a statement after a summit in Brussels today. “But uncertainties and fragilities remain, while the employment and social situation is expected to deteriorate further in 2010,” according to the statement.

- Russia’s economic decline eased last quarter from a record slump in the previous three months as oil, gas and metals prices rebounded and stimulus measures helped offset the impact of the global recession. Output of the world’s biggest energy exporter shrank 8.9 percent in the third quarter from a year earlier, after contracting a record 10.9 percent in the previous period, the State Statistics Service said in a preliminary estimate on its Web site today.

- Nakheel PJSC’s $3.52 billion bond rose to as much as 54 cents on the dollar three days before the debt falls due as some analysts said the Dubai state-controlled developer may seek to avoid a default. The Islamic bond maturing on Dec. 14 advanced as much as 4.8 percent to 54.125 cents today, from its closing level of 51.63 cents yesterday, according to Citigroup Inc. prices.

- Onyx Pharmaceuticals Inc.(ONXX) and Bayer AG said their Nexavar pill, approved for liver and kidney tumors, extended the lives of women with advanced breast cancer by delaying growth of malignancies that had spread or recurred. Tumors in two-thirds of women treated with Nexavar and paclitaxel shrank by at least 25 percent, and were stable for an average of 8.1 months, according to results presented today at the San Antonio Breast Cancer Symposium, an international gathering. About half of those on paclitaxel alone had shrinkage, and they were stable for 5.6 months, the study found.

- The case of five Muslim Americans who traveled to Pakistan, possibly to train to fight against the U.S., may represent part of a growing threat: homegrown Islamic extremists. The number of incidents this year involving American Muslims who have been accused of planning terror attacks, carrying them out, or leaving to join a jihad, or holy war, has risen to the highest level since the Sept. 11 attacks, according to a tally by Brian Michael Jenkins, a terrorism specialist and senior adviser to the Rand Corp., a Santa Monica, California- based policy group. He said he counted 12 cases this year out of a total of 32 in the eight-plus years since the attacks. The rise of American extremists is causing concern among U.S. officials.

- Greece and Ireland are among countries in an “intolerable” economic situation, which may lead to bailouts or even an exit from the euro area by the end of next year, according to Standard Bank Plc. The absence of a mechanism to permit so-called fiscal transfers within the 16-nation region may undermine the exchange-rate system, said Steve Barrow, head of Group of 10 foreign-exchange strategy at the bank in London.

Wall Street Journal:

- Rich countries should commit to cutting their emissions by at least 75% and possibly even more than 95% by 2050, according to a draft United Nations climate agreement disclosed Friday, amid new tension between China and the U.S. over how much rich nations should pay to subsidize efforts by China and other developing nations to cut their emissions. The question of whether China should receive subsidies for cutting greenhouse emissions stirred more volleys between the U.S. and China. Chinese Vice Foreign Minister He Yafei responded Friday, saying he is "shocked" by Chief U.S. climate negotiator Todd Stern's remarks earlier this week that China, with $2 trillion in currency reserves, shouldn't expect climate subsidies from the U.S.

- The government's expected exit from Citigroup Inc. could trigger the re-entry of institutional investors like mutual and pension funds. Institutional ownership in Citi is roughly 20%, the bank calculates. That makes Citigroup "one of the least owned banks" by institutional investors such as mutual funds and pension funds, J.P. Morgan Chase & Co. analyst Vivek Juneja wrote in a research report. Normally, institutions hold 70% or more of large companies' shares.

- Thousands Flee Iran as Noose Tightens.

- Bernard L. Madoff's life of country clubs and luxury homes ended when federal agents arrested him at his Manhattan penthouse apartment exactly one year ago. But he is adjusting to his new life behind rows of gleaming silver razor wire in this small Southern town. Inmate No. 61727-054 shares an unlocked cell at the medium-security prison at Butner Federal Correctional Complex with a younger man named Frank. He wears khaki prison garb and has been spotted walking on an outdoor track. He plays bocce, chess and checkers. He scrubs pots and pans in the prison kitchen.

- After nearly two years of weak activity, mergers and acquisitions among independent registered investment advisers, or RIAs, are likely to rebound, according to a study by clearing firm Pershing's Advisor Solutions unit and FA Insight, a Tacoma, Wash.-based consultancy.


- US consumers stepped up their spending in November and grew more optimistic this month, data showed on Friday, raising hopes a self-sustaining economic recovery was starting to unfold. The Commerce Department said total retail sales increased 1.3 percent last month, the largest advance since August, after rising 1.1 percent in October. It was the second straight monthly gain and beat market expectations for a 0.7 percent gain. A separate report showed consumer sentiment improved in early December on signs of stabilization in the labor market. The data were the latest in a series showing the economy may expand at a brisker pace in the fourth quarter than the 2.8 percent annual rate in the July-September period. "The improvement in confidence is a complement to the good retail sales. It suggests that the consumer is slowly turning upward," said Alan Gayle, senior investment strategist, Ridgeworth Investments in Richmond, Virginia.

- Mammoth financial institutions that have survived the government bailout process, along with their regional peers that have swallowed weaker competitors, are the best-positioned banks to succeed in 2010, according to a new report. Keefe, Bruyette & Woods said in a year-end analysis that the banking industry as a whole will mirror the larger economy in showing slow growth next year. But certain pockets—including global credit card companies—will outperform as conditions begin to improve.

- Capital spending on semiconductor-manufacturing equipment is on track to end this year with a 43% decrease, but investment in new gear is expected to rebound 45% next year as the chip industry recovers from one of its worst downturns, a market researcher said Friday. "While initially this may seem to be a dark time for the equipment segment, as the industry consolidates a much stronger equipment sector will emerge to carry on in the future," Gartner research vice president Bob Johnson said in a prepared statement.

The Business Insider:

- Chart Of The Day: The Average Investor Remains Terrified Of The Stock Market.

- If you are investing in commodity index funds or commodity ETF's, you are being played for a sap. You are footing the bill for commodity storage and the free profits of physical traders and trade groups, all because you - as an investor - have fallen for the sales pitch and siren call of exposure to commodities. You are using these ridiculous, invented financial products in greater and greater numbers and these products ultimately only make money for the salesmen and not for you. Let me try to explain this as simply as I can.

Real Clear Politics:

- The Environmental Shakedown. In the 1970s and early '80s, having seized control of the U.N. apparatus (by power of numbers), Third World countries decided to cash in. OPEC was pulling off the greatest wealth transfer from rich to poor in history. Why not them? So in grand U.N. declarations and conferences, they began calling for a "New International Economic Order." The NIEO's essential demand was simple: to transfer fantastic chunks of wealth from the industrialized West to the Third World. On what grounds? In the name of equality -- wealth redistribution via global socialism -- with a dose of post-colonial reparations thrown in. The idea of essentially taxing hard-working citizens of the democracies in order to fill the treasuries of Third World kleptocracies went nowhere, thanks mainly to Ronald Reagan and Margaret Thatcher (and the debt crisis of the early '80s). They put a stake through the enterprise. But such dreams never die. The raid on the Western treasuries is on again, but today with a new rationale to fit current ideological fashion.


- Senate Majority Leader Harry Reid continues to lag behind all potential Republican challengers in next year’s U.S. Senate race in Nevada, according to new Rasmussen Reports telephone polling in the state. For now at least, his championing of the president’s health care plan appears to raise further red flags for the Democratic incumbent. Fifty-four percent (54%) of Nevada voters oppose the plan, while 44% favor it. More significantly, however, those numbers include 49% who strongly oppose the plan while only 23% strongly favor it.


- As financial regulatory reform comes to a vote in the House on Friday, Wall Street firms are growing increasingly nervous that public relations missteps by one of their fellow firms — Goldman Sachs(GS) — are going to increase pressure in Congress to crack down even harder on the financial sector as a whole. Goldman has become an easy target for public anger, a sort of poster child for Wall Street’s highflying ways, big bonus culture and seemingly unapologetic stance about government bailouts.

- The House ethics committee investigation of Rep. Charles Rangel (D-N.Y.) is likely to extend well into 2010, according to sources familiar with the probe, meaning that the fate of the powerful chairman of the Ways and Means Committee could become a major political issue for House Speaker Nancy Pelosi of California and the Democratic leadership during a difficult election year. The committee’s investigation of Rangel’s personal finances, now 14 months old, has dragged on far longer than both Pelosi and Rangel had hoped. Pelosi predicted in late 2008 that it would be over by the end of that year or early 2009. Now sources familiar with the Rangel probe say the investigation could continue into February or March. The veteran New York lawmaker is the most prominent — but hardly the only — Democrat facing ethical questions.

- Get ready for a busy 2010. That's the advice from Scott Barshay and Jim Woolery, partners in Cravath, Swaine & Moore LLP's mergers and acquisitions group. The two predict that the comatose M&A market is set for a revival into 2010 and 2011. The prediction should carry some weight. Cravath, the New York-based law firm founded in 1819, has had a good run in recent high-profile deals, including advising Affiliated Computer Services Inc. in its announced $8.4 billion acquisition by Xerox Corp,, Burlington Northern Santa Fe Corp. in its $44 billion purchase by Berkshire Hathaway Inc., Stanley Works in its $4.5 billion acquisition by Black & Decker Corp. and advising Kraft Foods Inc. in its ongoing hostile move on Cadbury plc.


- The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data. Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted. Federal workers are enjoying an extraordinary boom time — in pay and hiring — during a recession that has cost 7.3 million jobs in the private sector. The highest-paid federal employees are doing best of all on salary increases. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available. When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000. The trend to six-figure salaries is occurring throughout the federal government, in agencies big and small, high-tech and low-tech. The primary cause: substantial pay raises and new salary rules. "There's no way to justify this to the American people. It's ridiculous," says Rep. Jason Chaffetz, R-Utah, a first-term lawmaker who is on the House's federal workforce subcommittee. The growth in six-figure salaries has pushed the average federal worker's pay to $71,206, compared with $40,331 in the private sector. Key reasons for the boom in six-figure salaries:


- Iraq could challenge Russia's number two spot among world oil producers after auctioning two prized oilfields on Friday, although it failed to attract companies to bid for deals in its most dangerous areas.

- A weekly index of future U.S. economic growth ticked up to levels reached early last year in the latest week, and a rebound in its yearly growth rate reaffirms forecasts of a smooth recovery, a research group said on Friday. The index's yearly growth rate rose to 23.8 percent from 23.4 percent the previous week, after spending seven straight weeks falling from record highs it hit in early October. "The economic outlook remains positive" despite the recent contraction in the group's measure of annualized economic growth, said Lakshman Achuthan, Managing Director at ECRI. "We really need to see a pronounced, pervasive and persistent move in the opposite direction to say things are changing direction from our earlier outlook." This week's index rose largely due to stronger housing activity, Achuthan said.

EE Times:

- Memory chip maker Hynix Semiconductor Inc. plans to spend about 2.3 trillion won (about $2 billion) on chip production in 2010, more than doubling its capex in 2009, according to a Korea Times report. The spend will be divided with 1.5 trillion won (about $1.3 billlion) going to DRAM and the remaining 800 billion won (about $700 million) being spent on NAND flash memory and logic production, the report said citing un-named industry officials as sources. The report quoted sources as saying Hynix is seeing "stronger-than-expected" demand for 1-Gbit DDR3 DRAMs.

No comments: