Monday, December 21, 2009

Tuesday Watch

Late-Night Headlines

- A derivatives index tied to North American leveraged loans is trading at the highest level since it was created in April as fund managers flush with cash and with a limited supply of real loans to buy turn to credit- default swaps. The Markit LCDX Index Series 12, which is linked to the senior secured loans of 90 companies with below-investment-grade ratings, rose 0.81 percentage point to about 103.56 percent of face value today, according to Goldman Sachs Group Inc. prices. That’s up from 79.5 percent when Series 12 started trading April 15. The index has rallied as investors turn to it as an alternative to investing in leveraged loans, where a 2009 return of 50 percent and about $100 billion of refinancing have left fund managers with more cash than loans to buy.

- CVS Caremark Corp.’s(CVS) Per Lofberg, the newly named president of the pharmacy-benefits management unit, said the company will offer genetic testing to help sales and profit by matching customers to the best drugs for them. “This is the next frontier of how pharmacy will be practiced and how pharmaceuticals will be brought to market,” Lofberg said in a telephone interview.

- Billionaire investor Carl Icahn, who battled with CIT Group Inc.’s(CIT) management before agreeing to support a prepackaged bankruptcy, reported holding a stake equal to almost 6.1 percent of shares outstanding.

- Billionaire investor Nelson Peltz increased his stake in Legg Mason Inc,(LM), the Baltimore-based asset manager, by more than one-fifth to 8.49 million shares. Trian Fund Management LP, Peltz’s New York-based hedge-fund firm, added 822,830 Legg Mason shares on Dec. 17 and 18, according to a filing today with the U.S. Securities and Exchange Commission. The fund holds 5.3 percent of Legg Mason, up from 4.3 percent as of Nov. 27, according to data compiled by Bloomberg.

- Hynix Semiconductor, the world's second-largest computer-memory chipmaker, was raised to "buy" from "reduce" at Nomura Holdings, which cited a reduced risk of oversupply of dynamic random access memory chips as well as a faster improvement in profitability.

- The queue of coal ships waiting at Australia’s Newcastle port, the world’s biggest export harbor for the fuel, stretched to its longest in more than two years as exports slowed for a second week. Sixty ships, waiting to load 4.2 million tons of coal, were outside the harbor at 7 a.m. local time yesterday, up from 52 vessels a week earlier, Newcastle Port Corp. said on its Web site. The queue is the longest since July 2007.

- China wants to give Iran more time to reach a negotiated settlement of its nuclear dispute with the U.S. and major European powers, rather than adopt tougher United Nations sanctions, a Chinese diplomat said today. “We ask for more time to be given and efforts to be made to see if we can reach some sort of breakthrough,” La Yifan, China’s envoy for Security Council and political affairs at the UN, said in an interview. “The door to diplomatic efforts is not completely slammed yet. Efforts should focus on trying to find a solution to the current impasse.”

- Apple Inc.’s(AAPL) Steve Jobs was named the best-performing chief executive officer by the Harvard Business Review, which praised him for delivering a “whopping” 3,188 percent return to investors during his tenure. The ranking shows which CEOs of public companies performed best over their entire time in office, according to the journal’s Web site. Other technology leaders on the list included former Samsung Electronics Co. CEO Yun Jong-Yong at No. 2 and Cisco Systems Inc. chief John Chambers at No. 4.

- Technology shares including Samsung Electronics Co. and Hynix Semiconductor Inc. may lead an advance in Asian markets next year after breaking out of a two-year "basing pattern," CLSA Asia-Pacific Markets said. The MSCI Asia excluding Japan Information Technology Index relative to the broader regional gauge has overcome the resistance formed by the October 2008 peak and the high this year, CLSA analysts Laurence Balanco and Tiara Fontanilla said. This follows a break above its 40-week weighted moving average in July, the analysts also said. "A break above the downtrend from the 2000 peak would appear structural to us," the analysts wrote. "As such, the IT sector is well placed to be an area of leadership in the region for years to come."

Wall Street Journal:

- Hynix Semiconductor Inc., the world's second largest maker of computer memory chips by revenue, expects to be profitable next year after posting huge losses in the early part of this year, as chip prices continue to recover and corporate demand for personal computers rebound. Jong-Kap Kim, chief executive of Hynix, told Dow Jones Newswires in an interview late Monday that he expects a global shortage of dynamic random access memory chips next year. The comments suggest that the downturn in the global semiconductor industry is over and chip makers are on the road to a full recovery. The DRAM industry is getting a boost from weak capital investment over the past two years and the launch of Microsoft Corp.'s new operating system, Windows 7, which is leading to a PC replacement cycle. DRAM chips are most widely used in PCs. "December this year is the only month ever where contract DRAM prices haven't fallen from November," Kim said. "Global demand for personal computers next year will likely increase 10% and in that sense the industry outlook is expected to remain solid." Given improving market conditions, Hynix is considering revising up its capital expenditure budget for next year to around KRW2.3 trillion to speed up its technology migration for more advanced chips and to expand an existing production line for NAND flash chips which are used in music players and digital camera. The company plans to also double its NAND flash output.

In October, Hynix said it will spend KRW1.5 trillion at minimum on capital expenditure next year, up from this year's target of just KRW1 trillion.

- The search for the organizers of an airplane filled with North Korean weapons bound for Iran and detained in Thailand has led to a company in Hong Kong. A company called Union Top Management Ltd., registered in Hong Kong, signed a contract this month to lease the cargo plane, according to documents obtained by arms-trafficking researchers in Belgium and the U.S.

- CBS Corp.(CBS) and Walt Disney Co.(DIS) are considering participating in Apple Inc.'s plan to offer television subscriptions over the Internet, according to people familiar with the matter, as Apple prepares a potential new competitor to cable and satellite TV. The proposed service by the maker of iPhones and iPod music players could, in at least some scenarios, offer access to some TV shows from a selection of major U.S. television networks for a monthly fee, according to people familiar with the discussions. Apple is pushing to complete licensing deals and hopes to introduce the service in 2010.

- Lawmakers set aside more than $4 billion in earmarks in the just-approved 2010 defense appropriations bill, and watered down efforts to curb the practice of targeting spending for programs in members' districts. The House included language in its defense bill subjecting future earmarks for for-profit companies to full and open competition. But the Senate resisted, meaning that senators will continue to be able to set aside spending for favored companies, the group said.

- With companies around the world outsourcing their printing services, the printer and copier industry seems to have found a rare bright spot. Big companies are increasingly hiring Xerox Corp., Hewlett-Packard Co. and others to provide "managed print services," a variety of outsourcing in which the vendor takes control of the customer's production of office documents, typically owning the machines, advising on how to use them, and taking a per-page charge.

- A closely watched bond-market measure of investor optimism hit a record Monday, amid signs the U.S. economy's recovery is strengthening. That measure is the yield curve -- the difference between short-term and long-term interest rates on government bonds. That number is at its highest level ever, surpassing the record set in June, and signals that investors are expecting a stronger economic turnaround ahead. The milestone comes amid a broad sell-off in government bonds, as investors shift money into riskier assets like stocks in anticipation of stronger growth.

- 'Twill be the night before Christmas when the Senate delivers the top item on White House Chief of Staff Rahm Emanuel's wish list: a health-care bill. But like the beautifully wrapped gift that looks so wonderful under the tree, this health-care legislation might start to look more like the ghastly sweater from your Aunt Tilly once it comes out of the box.

- Far from achieving a major step forward, Copenhagen—predictably—achieved precisely nothing. The nearest thing to a commitment was the promise by the developed world to pay the developing world $30 billion of "climate aid" over the next three years, rising to $100 billion a year from 2020. Not only is that (perhaps fortunately) not legally binding, but there is no agreement whatsoever about which countries it will go to, in which amounts, and on what conditions. The reasons for the complete and utter failure of Copenhagen are both fundamental and irresolvable. The first is that the economic cost of decarbonizing the world's economies is massive, and of at least the same order of magnitude as any benefits it may conceivably bring in terms of a cooler world in the next century.


- The World Trade Organization upheld a ruling Monday that China is illegally restricting imports of U.S. music, movies and books. The WTO had ruled in August that the Chinese government must stop forcing U.S. artists and production companies to use state-controlled distributors, and must allow foreign companies to sell music online. But China in September had appealed the ruling on the grounds that it was defending its "public morals." The international body said in its report Monday that "China has not demonstrated that the relevant provisions are 'necessary' to protect public morals." "Today America got a big win," U.S. Trade Representative Ron Kirk said in a statement. "We are very pleased that the WTO has found against China's import and distribution restrictions on U.S. movies, music, DVDs and publications."

Business Week:
- 25 Products That Might Just Change The World.

Hedge Fund Implode-O-Meter:

- Since we all first learned at Dealbreaker that Stevie Cohen’s ex-wife thinks he operates outside the lines of the law- we thought we’d look into who else felt the same. What we found is that almost everyone in hedge fund land also trades equities like Stevie does – and they’re starting to move away from anything that looks like they’re a mini-me SAC. In fact, there’s a new buzz word the titans who run other billion-dollar funds are using to direct their legions: being `SAC-REMOTE'. Funds like Blue Ridge, Greenlight, Third Point, Glenview, and Maverick are cutting back on any contact with King Stevie. When we asked major players such as Jim Chanos and others if they’ve been pinging Stevie about a trade lately, you’ll get a very defensive `no.' Why? Because word on the street is they all think FBI special agent BJ Kang, who is now dogging Stevie, has the goods to deliver the hammer soon in the form an indictment or arrest for insider trading. Extra measures are being taken to hire data-miners to comb through any and all emails firms and their trading consultants ever sent to anyone at SAC in an attempt to erase them from internet memory. According to traders we talked with, they are even going as far as getting out of trades that might look similar to any of Stevie’s. So it looks like running due diligence on your `SAC risk' to prove to your investors that you’re clean – like Larry Robbins of Glenview capital just did – is the new `killing it'.


- Just hours after a critical Monday morning vote in the Senate, Democrats were already talking about future changes to the health reform effort in hopes of calming a revolt among liberal activists. Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, predicted the government health insurance option long favored by liberals would be part of that second look. “It will be revisited,” Harkin said. “This is just the beginning. … What we’re building is a starter home, not a mansion. And guess what? We have room for expansions and additions later on.”


- With just a few days left until Christmas, 52% of Americans have not finished their holiday shopping, according to the latest Rasmussen Reports national telephone survey. In fact, 24% of adults have not even started their shopping yet.

Real Clear Politics:

- Calling these climate models "science" and then having the audacity to call them "settled" is the same kind of Big Lie that allowed Congress to assure us that Freddie Mac and Fannie Mae were completely safe so we had nothing to worry about when they embarked on an orgy of sub-prime lending. Every computer model predicting the future behavior of the mortgage market fit all the historical data - right up until the moment that they didn't. Before we let suspect computer models developed by a handful of people drive the entire world economy into a ditch, don't you think we should take the covers off and invest a little more time and effort to thoroughly examine how these models work? Hopefully this will include analytical critiques from a wider cast of characters than the self-serving cabal whose mendacity and ham-handed attempts to marginalize dissent were recently exposed. Perhaps an open process will help both "sides" focus on attacking weaknesses in the models themselves rather than attacking each other's tribal affiliations. Only then can we hope to get real value for all the money we taxpayers fork over to support these scientists.


- Cuba's foreign minister called President Barack Obama an "imperial and arrogant" liar Monday for his conduct at the U.N. climate conference, a reflection of the communist island's increasingly fiery verbal attacks on the U.S. government. Bruno Rodriguez spent an hour and a half lambasting Obama's behavior in Copenhagen, telling a news conference, "at this summit, there was only imperial, arrogant Obama, who does not listen, who imposes his positions and even threatens developing countries." He called the summit "a fallacy, a farce" and said Washington used back-room deals and strong-arm tactics to foist on the world a deal that he labeled "undemocratic" and "suicidal" because it urges — but does not require — major polluters to make deeper emissions cuts. Rodriguez also said Cuba and other poor nations have refused to recognize the agreement because they weren't permitted to participate in its development. "The United States won't quit trying to destroy the revolution," Castro said, referring to the armed rebellion that brought his brother Fidel to power on New Year's Day 1959. "In the past few weeks we have witnessed the stepping up of the new administration's efforts in this area," he said, adding that the arrest "demonstrates that the enemy is as active as ever." Last week, the elder Castro, who stepped down as head of state in February 2008, wrote that Washington is looking to solidify its control over Latin America and that Obama's "friendly smile and African-American face" hide his government's sinister true intentions for the region. Raul Castro over the weekend mentioned recent war games Cuba conducted to prepare for a U.S. invasion and hinted that the contractor's arrest shows further American aggression against his country is a real possibility.


- U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday. Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan's Ross School of Business. Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds. Political influence was most helpful for poorly performing banks, the study found. "Political connections play an important role in a firm's access to capital," Sosyura, a University of Michigan assistant professor of finance, said in a statement. Banks with an executive who sat on the board of a Federal Reserve Bank were 31 percent more likely to get bailouts through TARP's Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 percent more likely to get capital purchase program funds.

- Technology distributor Jabil Circuit Inc (JBL) posted a first-quarter profit, compared with a loss in the year-ago quarter, which was hurt by a goodwill impairment charge. The company, which competes with Flextronics International Ltd (FLEX) and Sanmina-SCI Corp (SANM), forecast a revenue of $2.9 billion to $3.1 billion and core earnings of 20 cents to 32 cents per share for the second quarter. Analysts were expecting earnings of 19 cents per share on revenue of $2.88 billion. Shares of the company closed at $15.02 Monday on the New York Stock Exchange. They rose 6 percent to $15.91 in trading after the bell.


- The super-strong euro is having sharply varying effects on the different countries in the eurozone and causing the rift between north and south to widen further, according to a new report by Standard & Poor's (S&P).

Late Buy/Sell Recommendations

Thomas Weisel:

- Rated (CPRT) Overweight, target $42.


- Rated (CSC) Outperform, target $72.

Night Trading
Asian Indices are +.25% to +1.25% on average.

Asia Ex-Japan Inv Grade CDS Index 96.50 -1.0 basis point.
S&P 500 futures +.27%.
NASDAQ 100 futures +.26%.

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
- (CMC)/-.04

- (CTAS)/.43

- (FINL)/-.09

- (MU)/.06

- (RHT)/.16

- (TIBX)/.20

Economic Releases

8:30 am EST

- Final 3Q GDP is estimated to rise +2.8% versus a prior estimate of a +2.8% gain.

- Final 3Q Personal Consumption is estimated to rise +2.9% versus a prior estimate of a +2.9% increase.

- Final 3Q GDP Price Index is estimated to rise +.5% versus a prior estimate of a +.5% increase.

- Final 3Q Core PCE is estimated to rise +1.3% versus a prior estimate of a +1.3% gain.

10:00 am EST

- The House Price Index for October is estimated to rise +.2% versus unch. in September.

- Existing Home Sales for November are estimated to rise to 6.25M versus 6.10M in October.

Upcoming Splits
- None of note

Other Potential Market Movers
The weekly retail sales reports, Richmond Fed Manufacturing Index, weekly API energy inventory report and the ABC Consumer Confidence Index could also impact trading today.

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