Tuesday, December 29, 2009

Tuesday Watch

Late-Night Headlines

- JPMorgan Chase & Co.(JPM) Chief Executive Officer Jamie Dimon told U.K. Chancellor of the Exchequer Alistair Darling that his 50 percent tax on banker bonuses would unfairly penalize the U.S. lender, a person close to the firm said. Dimon, 53, mentioned plans to build a 1.5 billion pound ($2.4 billion) European headquarters in London’s Canary Wharf as an example of the New York-based firm’s commitment to the city, the person said. Dimon reiterated that the bank, the second- biggest U.S. lender by assets and deposits, paid British taxes and didn’t take a U.K. taxpayer bailout, the person said, declining to be identified because the conversation was private. The telephone call was made after Darling on Dec. 9 imposed a 50 percent tax on discretionary bonuses greater than 25,000 pounds at all banks operating in the U.K. JPMorgan is considering dropping plans to build its European headquarters at Canary Wharf because of the U.K. bonus tax, the Financial Times newspaper reported, citing an unidentified bank executive. The bonus tax will be a factor in the decision, the executive told the newspaper.

- China executed a British national today, ignoring pleas from the U.K. government for clemency and protests from human rights bodies that the prisoner was suffering from a mental illness and unfit to stand trial. Father of five, Akmal Shaikh, was killed today in Urumqi, the capital of China’s westernmost Xinjiang province. “I condemn the execution of Akmal Shaikh in the strongest terms,” U.K. Prime Minister Gordon Brown said in a statement released by the Foreign Office. “No mental health assessment was undertaken.” Shaikh’s execution is the first of a national from a European Union country in China in 50 years, according to the charity Reprieve, which campaigns for death row prisoners globally. China carried out more executions than the rest of the world put together last year, Amnesty International says. Shaikh was caught with 4.03 kilograms of heroin in Urumqi, certified to be 84.2 percent pure, Xinhua reported.

Wall Street Journal:

- Al Qaeda's affiliate in Yemen claimed responsibility for the attack on Northwest Flight 253, and U.S. officials said the claim appears valid -- the clearest indication yet that the attempted takedown wasn't just the work of a lone radical inspired by Islamist rhetoric, as some investigators initially believed. The development came as evidence mounted that the U.S. didn't pursue potential leads that might have brought alleged Christmas Day bomber Umar Farouk Abdulmutallab to the attention of authorities, according to Congressional investigators and U.S. officials. Homeland Security Secretary Janet Napolitano backtracked Monday from comments she made in televised interviews over the weekend, in which she said the U.S.'s security systems had worked. President Barack Obama, in his first public comments about the incident, promised the government would do everything it can to keep travelers secure. "We will not rest until we find all who were involved and hold them accountable," Mr. Obama said in remarks broadcast on television from Hawaii, where he is on vacation.

A statement attributed to the group "al Qaeda in the Arabian Peninsula" claimed it was retaliating for what it says was the U.S.'s role in a recent Yemeni military offensive on al Qaeda, according to a translation by the Middle East Media Research Institute.

- After signing a $787 billion economic stimulus and embracing two annual blowout budgets that will double the national debt over 10 years even before ObamaCare, President Obama is poised to pivot next (election) year and denounce the horrors of deficit spending. So the White House is now floating a bipartisan commission to reduce federal borrowing, and much of the political class is all for it. We only hope Republicans aren't foolish enough to fall down this trap door, though some are already tempted. A budget deficit commission is nothing more than a time-tested ploy to get Republicans to raise taxes.

- The Tipping Point in Iran. The past six months show that the democratic movement is here to stay. That movement now needs a coherent plan and more structured leadership.

- Wall Street has undergone a radical face lift this year, but finance industry recruiters are expected to stick to roughly the same formula when looking to fill entry-level positions with college graduates in the future. Wealth management, investment banking and research are expected to see a hiring surge in the coming years, according to Joseph Logan, founder and managing director of Pinnacle Group International, a New York executive recruiting firm specializing in the financial services industry. "A strong background in accounting plus financial [knowledge in] evaluation is the key—and being well-rounded will help a lot," says David Smith, an associate professor at the McIntire School of Commerce at the University of Virginia who specializes in corporate finance and banking. Strong social skills and the ability to think creatively are important to round out more technical and quantitative talents.

- Rep. John Mica (R., Fla.), one of the authors of the law establishing the federal Transportation Security Administration, called the attempted airline bombing last week "a serious wakeup call" and urged the Congress to change its method of choosing TSA administrators. "There has been no TSA administrator for nearly a year and the next one will be the fifth in eight years. Running a security agency with a revolving door is a recipe for failure," Mica said Monday in a press release. He is the ranking Republican of the House Committee on Transportation and Infrastructure and chairman of the Subcommittee on Aviation from 2001 to 2007. He also called TSA "an agency that is ineptly led from Washington, D.C., by a top-heavy, well-paid headquarters staff of 3,200 with an average annual salary of $103,000." Mica pointed out that despite being larger than the departments of education and commerce, with more than 60,000 employees, "TSA has failed to compile a reliable watch list after eight years." He suggested cutting the agency's managerial and administrative staff by 25% and transferring these positions overseas and to high-risk locations, "more in line with the Israeli model of aviation security." "With a record number of air marshals at TSA, it is unbelievable that the agency could not deploy at least one to an at-risk international flight with a suspect reportedly on at least one watch list and whose father reportedly had previously warned U.S. embassy officials," Mica added.

- Time Warner Cable Inc. (TWC) is willing to pay News Corp.'s (NWS, NWSA) Fox Broadcasting stations a retransmission consent fee for access to its programming next year, according to two people familiar with the matter, but the companies are negotiating on the size of the fee as the end of their current contract approaches.

Fox, which doesn't receive any retransmission fees from Time Warner Cable, is asking for $1 per subscriber per month--a figure that more than doubles the amount the cable company pays to other broadcast networks, like CBS Corp. (CBS).

- Morgan Stanley(MS) is poised to overhaul the way it pays its most senior executives, deferring more of their compensation over time and benchmarking their pay against rival firms, according to people familiar with the matter. But the investment bank may stop short of the approach taken by Goldman Sachs Group Inc., which said its top executives would receive only stock for 2009 bonuses. Senior Morgan Stanley executives may receive about one quarter of their 2009 pay in cash, with the rest coming as deferred stock, one of the people familiar with the matter said.

- American International Group Inc.(AIG) plans to pay its outgoing general counsel Anastasia Kelly several million dollars in severance benefits after she resigned because of federal pay curbs, according to people familiar with the matter. The move to pay out the benefits to AIG's top in-house lawyer comes amid recent scrutiny of Ms. Kelly's actions in a December pay dispute involving her and four other senior executives.

- The Man Who Wired Silicon Valley. Raj Rajaratnam liked to tell people that his first name meant "king" in Hindi, and, coupled with his last name, that made him "king of kings." He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who'd call you an "idiot" or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?

- Apparently the fellows in al Qaeda took as a personal insult Secretary of Homeland Anxiety Janet Napolitano's comment Sunday that their role in the foiled Detroit airliner bombing wasn't clear but would be investigated. Yesterday, al Qaeda's ascendant franchise in the Arabian peninsula saved Secretary Napolitano the trouble of plowing through all the layers of the national-security bureaucracy for an answer. The terrorist organization put out a pointed statement not only claiming responsibility but also mocking the U.S.'s ability to stop them. Umar Farouk Abdulmutallab, they said, "dealt a huge blow to the myth of American and global intelligence services and showed how fragile its structure is." What this means is that we have to think more broadly about jihad and the potential recruitment of terrorists anywhere in the world, including inside the United States. We and our European allies have to revisit the problem of fiery imams using mosques as recruitment depots for airline suicide bombers. The close call in the airspace over Detroit gives "probable cause" new meaning. Al Qaeda has sent a message to the Obama Administration: You are in a war. Someone in our government needs to say clearly that they now understand the message.

- The U.S. Federal Reserve on Monday pressed ahead toward the creation of a new mechanism it says could be used to withdraw money from the banking system once policymakers decide to tighten monetary policy.

- The Obama administration is poised to announce loan guarantees to help kick-start the country's nuclear power industry, which hasn't built a new plant in more than three decades. Congress authorized $18.5 billion for nuclear loan guarantees in 2005, hoping to revive development of the carbon-free source of energy.

- Citi(C), The Can't Lose Trade Of 2010?

- After months of speculation, on Dec. 22 President Obama appointed the nation's first "cybersecurity czar." Former tech executive Howard Schmidt will coordinate efforts to prevent major attacks on America's digital networks. For Tom Reilly, chief executive of ArcSight (ARST), this just underscores the demand for his network-defending software and appliances.


- The chief economist at First Trust Advisors, a Chicago asset manager, Wesbury has one of the most bullish assessments on the economy. His new book trumpets that optimism in its title: "It's Not As Bad As You Think." Wesbury predicts economic growth of 5% or more in the last three months of this year, nearly twice the average forecast, followed by at least 4.5% growth in 2010. He sees job growth returning as soon as December of this year. Unemployment, now at 10%, will fall to about 8.5% by the end of 2010, he believes. That's about a percentage point better than most economists' estimates. In 2011, he says, the rate will drop to about 7%. He's bullish on housing, too: He says things are improving so fast in real estate that by the third quarter of 2010, there could be a seller's market for new homes. Wesbury maintains this rosy view even though he believes government action to rescue the economy hurt more than it helped. He blames the financial meltdown not on lack of government oversight, but on mark-to-market accounting, which required banks and Wall Street firms to value the assets on their balance sheet at current market prices. Those rules, which caused massive losses when the housing bubble burst, were significantly loosened earlier this year. That easing, he argues, was the key to reopening the flow of credit and reviving the economy. Despite his policy worries, he believes the economy can overcome the headwinds caused by government intervention to post solid growth. Here now is a question-and-answer session with Mr. Sunshine, Brian Wesbury.

Business Week:
- The dollar and U.S. stocks may keep rising together as economies improve around the world, reversing the relationship that held between March and November, hedge- fund manager Barton Biggs said. The currency is undervalued against the euro and yen and the economic recovery is “gaining momentum,” he added. Gross domestic product will increase 2.6 percent next year after contracting 2.5 percent in 2009, according to the median economist forecasts in a Bloomberg survey. “After a severe economic shock like we just had, the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs, who runs New York-based Traxis Partners LP, said in a Bloomberg Television interview today. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. My guess is that the next move in both could be on the order of 10 percent.” Bullish bets that Biggs made during the worst of the credit crisis are giving his six-year-old firm its best returns ever. His view on the dollar echoes the forecast from Marc Faber, publisher of the “Gloom Boom & Doom” newsletter, who told Bloomberg Television today that currency dollar may appreciate 5 percent to 10 percent against the euro in the near term while equities advance.

- Life Science Stocks: A Growing Market in 2010. Genetic research projects for personalized medicine are drawing $10 billion in government stimulus funds. Nonmedical applications are promising, too.

Washington Post:

- A dangerous explosive allegedly concealed by Nigerian student Umar Farouk Abdulmutallab in his underwear could have blown a hole in the side of his Detroit-bound aircraft if it had been detonated, according to two federal sources briefed on the investigation. Authorities said they are still analyzing a badly damaged syringe that Abdulmutallab allegedly employed as a detonating device on Christmas Day. But preliminary conclusions indicate that he used 80 grams of PETN -- almost twice as much of the highly explosive material used by convicted shoe bomber Richard C. Reid. A day after Homeland Security Secretary Janet Napolitano said there was "no indication" the incident was connected to a larger plot, there were increasing signs that the failed bombing may have represented one of the most serious terrorist threats in the United States since the attacks of Sept. 11, 2001.

Chicago Tribune:

- Wendy's is about to test coupons sent to cell phones as text messages. Customers of the nation's No. 3 burger chain who sign up for the promotion and provide their phone number will receive a discount by showing their mobile device to a Wendy's cashier.

USA Today:

- Heart specialists on Monday filed suit against Secretary of Health and Human Services Kathleen Sebelius in an effort to stave off steep Medicare fee cuts for routine office-based procedures such as nuclear stress tests and echocardiograms. The lawsuit, filed in U.S. District Court for the Southern District of Florida, charges that the government's planned cutbacks will deal a major blow to medical care in the USA, forcing thousands of cardiologists to shutter their offices, sell diagnostic equipment and work for hospitals, which charge more for the same procedures. "What they've done is basically killed the private practice of cardiology," says Jack Lewin, CEO of the American College of Cardiology (ACC), which represents 90% of the roughly 40,000 heart specialists in the USA. George Moutsatsos, a managing partner in Cardiology Consultants of Delaware, a group of 32 heart specialists that serves half of the heart patients in the state, says heart attack patients in rural areas are likely to suffer. Moutsatsos says the money doctors make for providing imaging services helps compensate them for their round-the-clock availability to treat heart attacks with balloon angioplasty. "In rural areas, we get very little money to do this work," he says. "Those are the areas where we're going to consider cutting." Scott Smith, a cardiologist who works in rural Silver City, N.M., not far from the Mexican border, says, "The closest cardiologist to me is 150 miles away. With all these cuts coming, it will make it impossible for me to break even seeing 40 patients a day. "It's so absurd, it's kind of funny," he says. "I know ACC doesn't think it's funny. It's an efficient way of getting rid of cardiology."

- Texas' now-strong banks hold lessons for rest of US.


- President Obama’s GOP critics have been emboldened during the past 48 hours by the stumbling initial response of Homeland Security Secretary Janet Napolitano, who spent Monday retracting her Sunday claim that “the system worked” in the aftermath of Umar Farouk Abdulmuttalab’s near takedown of a jet ferrying nearly 300 people from Amsterdam to Detroit. “In the past six weeks, you’ve had the Fort Hood attack, the D.C. Five and now the attempted attack on the plane in Detroit … and they all underscored the clear philosophical difference between the administration and us,” said Rep. Pete Hoekstra (R-Mich.), the ranking Republican on the House Intelligence Committee. “I think Secretary Napolitano and the rest of the Obama administration view their role as law enforcement, first responders dealing with the aftermath of an attack,” Hoekstra told POLITICO. “And we believe in a forward-looking approach to stopping these attacks before they happen.”

Real Clear Politics:

- Why Regular Americans Are Turning Away From Democrats.

Pittsburgh Tribune-Review:

- As I'm writing this, they're in a panic in Congress, voting in the wee hours, bribing reluctant senators with millions in slush funds for their respective states, all to ram through a health reform bill that few if any of the lawmakers have even read, let alone intellectually reflected upon or debated. They've already lost the public. In the most recent NBC News/Wall Street Journal poll, support for the Democrats' health reform bills has dropped to 32 percent. In the latest CNN poll, the public is opposed to the Democrats' health reforms by a margin of nearly 2 to 1. "Democrats are on a political suicide mission," notes Megan McArdle, economics writer at The Atlantic magazine's blog. "At this point, the thing is more than a little inexplicable," McArdle asserts, speaking of the unpopularity of the legislation and the subsequent likelihood that Democrats will lose seats in both the House and Senate in next year's elections. "No bill this large has ever passed on a straight party-line vote or even anything close to a straight party-line vote," writes McArdle. "No bill this unpopular has ever passed on a straight party-line vote." The Democrats' suicide mission is the result of their defining America's health care system as "broken," a system in such "crisis" that nothing short of an immediate and complete overhaul is required -- a task, unfortunately, that's beyond the skill levels of Barack Obama, Nancy Pelosi and Harry Reid. Rahm Emanuel, Obama's chief of staff, described the strategy for power grabbing early on: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before."

Minneapolis St. Paul Business Journal:

- Retailers saw traffic on their Web sites surge in November, with Target Corp. ranking second behind Wal-Mart Stores Inc.(WMT) in the department store category, according to research released Monday. Visits to sites in the toy, consumer electronics and department store categories all jumped by more than 30 percent in November compared to the prior month, Reston, Va.-based digital media tracking company ComScore(SCOR) reported. Minneapolis-based Target's (TGT) traffic jumped 43 percent to 38.8 million unique visitors in November. Wal-Mart, meanwhile, reported 46.2 million visitors, up 62 percent compared to October. Overall, online department stores saw visits to their sites grow 33 percent in November to roughly 81 million.


- Morgan Stanley (MS) is setting up a committee to help oversee the bank's risk management, the company said in a regulatory filing on Monday.

- Speculators ditched bets against the dollar in the latest week and were long the U.S. currency for the first time since May, according to Commodity Futures Trading Commission data released on Monday. The value of the dollar's net long position was around $700 million in the week ending Dec. 22, up from a net short position of $1.98 billion the prior week, according to Reuters calculations.

Financial Times:

- Media companies would be better off handing their online video activities to Google’s(GOOG) YouTube video-sharing site than pursuing home-grown efforts such as Hulu.com and the US cable industry’s TV Everywhere initiative, according to senior Google executives. “At some point in time it becomes an economic choice by the content owners. It’s a matter of core competences,” Nikesh Arora, Google’s president of global sales operations and business development, told the Financial Times.

Der Spiegel:

- The regime in Tehran has gone on the defensive following deadly riots on Sunday. By breaking the traditional ceasefire on religious holidays, the regime has angered many conservatives. The government in Tehran could be facing louder and more self-assured demonstrators in the coming days who see their opportunity to force regime change.

Evening Recommendations

- None of note

Night Trading
Asian indices are -.50% to +.75% on avg.

Asia Ex-Japan Inv Grade CDS Index 93.0 -2.0 basis points.
S&P 500 futures +.01%.
NASDAQ 100 futures +.05%.

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

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com 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

9:00 am EST

- S&P/CaseShiller Home Price Index for October is estimated to rise to 147.0 versus 146.51 in September.

10:00 am EST

- Consumer Confidence for December is estimated to rise to 53.0 versus a reading of 49.5 in November.

Upcoming Splits

- None of note

Other Potential Market Movers
- The Treasury's 5-Year Note auction, API energy inventory data, ABC Consumer Confidence reading and weekly retail sales reports
could also impact trading today.

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

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