Wednesday, December 30, 2009

Wednesday Watch

Late-Night Headlines

- Bankers Get $4 Trillion Gift From Barney Frank. To close out 2009, I decided to do something I bet no member of Congress has done -- actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill. Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. The Senate has yet to pass its own reform plan. The baby of Financial Services Committee Chairman Barney Frank, the House bill is meant to address everything from too-big-to-fail banks to asleep-at-the-switch credit-ratings companies to the protection of consumers from greedy lenders. I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog. And yes, I plowed through all those pages. (Memo to Chairman Frank: “ystem” at line 14, page 258 is missing the first “s”.) The reading was especially painful since this reform sausage is stuffed with more gristle than meat. At least, that is, if you are a taxpayer hoping the bailout train is coming to a halt. If you’re a banker, the bill is tastier. While banks opposed the legislation, they should cheer for its passage by the full Congress in the New Year: There are huge giveaways insuring the government will again rescue banks and Wall Street if the need arises.

- The U.S. Commerce Department said it would impose anti-dumping duties of as much as 145 percent on Chinese steel-grating imports under a preliminary finding that companies sold the product at prices below fair value.

- GMAC Inc., the home and auto lender, is discussing with the Obama administration an additional aid package of about $3 billion to $4 billion, according to a person familiar with the matter. The size of the assistance remains under negotiation, the person said on condition of anonymity because the talks are private. A deal may be reached within days as Detroit-based GMAC incorporates losses from its home-loan businesses, the person said. GMAC has already received two rounds of government aid totaling $13.5 billion as it struggled with losses at its home mortgage operations, which include Residential Capital LLC, known as ResCap. The Obama administration regards the lender as crucial to the survival of the U.S. auto industry. General Motors Co., its former parent, and Chrysler Group LLC rely on the firm to finance their vehicle buyers.

- U.K. Prime Minister Gordon Brown’s government escalated a diplomatic dispute with China after the execution yesterday of a British national caught smuggling heroin, the third rift between the two nations this year. Foreign Minister Ivan Lewis said yesterday he was “sick to his stomach” at China’s decision to put Akmal Shaikh to death without considering evidence he suffered from mental illness. Brown said he condemned the execution “in the strongest terms.”

- Japan Airlines Corp. plunged to a record in Tokyo trading on speculation the company may seek bankruptcy, even as the nation’s transport minister said other options remain for the unprofitable carrier. The airline, Asia’s biggest by sales, dropped as much as 32 percent to 60 yen and traded at 67 yen as of 1:24 p.m. local time. The volume of shares sold was seven times the daily average for the past three months.

Wall Street Journal:

- The U.S. had multiple pieces of information about alleged bomber Umar Farouk Abdulmutallab, according to senior U.S. officials, including intelligence reports and communications intercepts suggesting a Nigerian was being prepped for a terror strike by al Qaeda operatives in Yemen.

- The Price for Fannie and Freddie Keeps Going Up. Barney Frank's decision to 'roll the dice' on subsidized housing is becoming an epic disaster for taxpayers. On Christmas Eve, when most Americans' minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent. This action confirms that the decade-long congressional failure to more closely regulate these two government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one of the worst policy disasters in our history.

- Auditors discovered that 234.7 billion yuan ($34.3 billion) disappeared from public funds in the first 11 months of this year, state media said Tuesday, in a report that underscores the depth of official corruption in China. Cases involving 67 senior officials and 164 others were handed over to judicial authorities. Premier Wen Jiabao has called on state auditors to review public-investment projects to help avoid embezzlement and waste, Xinhua news agency reported. Official corruption is one of the main causes of social unrest in China, and the country's leaders have publicly warned that it has become so widespread that it now threatens Communist Party rule.

- Freddie Mac's Christmas Eve securities filing on executive compensation showed that the company's human-resources chief, Paul George, is among the mortgage company's five highest-paid officers, with annual pay of up to $2.7 million, depending on incentive payments. That makes Mr. George a rarity. Corporate Library says HR executives are among the five best compensated at just 186, or 6%, of the 3,200 corporations in the research firm's North American database. And among those happy 186 HR honchos, Mr. George ranks in the top 15 in terms of pay. Before the government took over the reins in 2008 amid soaring losses, Freddie was slow to find successors for its chief executive and chief operating officer, despite prodding from regulators. Mr. George, who worked at Wachovia Corp. before joining Freddie Mac in 2005, didn't respond to requests for comment.

- Companies gambling that they can shake up the portable-computer market plan to lay some cards on the table in Las Vegas next week. The 2010 Consumer Electronics Show will be a coming-out party for a new breed of ultra-small laptops that act more like smart phones—designed to be always on and connected to the Internet via 3G cellular networks, ready to call up a Web page or post an update on Twitter. Promoters of the new devices have been pushing the term "smartbooks," partly to distinguish them from the low-end portables called netbooks that have been the hottest thing in the PC industry over the past two years. But there are unanswered questions about features and pricing for the new hardware, leaving the possibility that consumers could get confused with existing netbooks.

- After nearly two decades fighting gangs, Los Angeles County Sheriff's Detective Robert Lyons thought he had seen it all. Until he saw members of the Bloods and the Crips -- rival gangs that spent years in brutal conflict -- meeting amiably in a restaurant. "They were talking. There was hugging and high-fiving. It was unbelievable," Mr. Lyons said. He has heard a refrain from gang members: Red (the Bloods) and blue (the Crips) make green (money). Gangs that were once bloody rivals now are cooperating to wring profits from the sale of illegal drugs and weapons, law-enforcement officials and gang experts say. In some cases, gangs that investigators believed to be sworn enemies share neighborhoods and strike business deals. The collaboration even crosses racial lines, remarkable in a gang world where racial divisions are sharp and clashes are often racially motivated.

- The notion that unionized airport baggage screeners in Detroit could have prevented Umar Farouk Abdulmutallab from boarding a plane in Amsterdam or Lagos doesn't make much sense. But sure enough, some in Congress are using the thwarted Christmas Day terrorist attack to argue that a new leader for the Transportation Security Administration could have saved the day. Rahm Emanuel's famous declaration that a crisis is a terrible thing to waste seems to have become a way of Washington life.
- There’s nothing like travel to chase away the winter blues. And those who book over the next few weeks stand to benefit from some of the deepest discounts in years on hotels, cruises and airfare—compliments of the troubled economy. January through March, the off-season in many locations, is “always the best time to get the best deals,” says Pauline Frommer, a travel expert and editor of the Pauline Frommer Guide books, who notes that package deals over the last few years have hit rock bottom.

- Heading out into the real world, college graduates are often told, "It's not what you know, it's who you know." Networking is a vital function of the business world, and nobody understands that better than advertising's middleman, DG FastChannel (DGIT).


- Wireless Watch: Expect a Rebound in 2010.

Business Insider:

- Leaked Nexus One Documents: $530 Unlocked, $180 With T-Mobile. A tipster just sent in these Nexus One screenshots that supposedly confirms two things: that Google will sell it unlocked and unsubsidized for $530, and that Google will sell it by themselves. Plus, some other very interesting details.

- Goldman(GS) is in a pay scuffle with a Chinese power company. According to Reuters, a Goldman subsidiary, J. Aron and Company, says that Shenzhen Nanshan Power owes them $80 million. But Shenzhen Power is refusing to pay

- The International Monetary Fund released a report today called "A Fistful of Dollars." In the report, the IMF discusses how the riskiest mortgage lenders were the most active lobbyists in Washington. These lenders pushed for more lax laws regarding mortgage securitization, ultimately contributing to the housing meltdown of the past year and a half. In fact, lobbying can attributed to a lot of the blame associated with the crisis.

- For those interested in natural gas, CNBC held a good, brief debate on it between bull Arthur Gelberg, and Jim Osten of Camrbridge Energy Research Associates (CERA), who argues that we're basically looking at a permanent sate of oversupply.


- The governors of the nation’s two largest Democratic states are leveling sharp criticism at the Senate health care bill, claiming that it would leave their already financially strapped states even deeper in the hole. New York Democratic Gov. David Paterson and California GOP Gov. Arnold Schwarzenegger are urging congressional leaders to rework the Medicaid financing in the Senate-passed bill, warning that under that version their states will be crushed by billions in new costs. After the Senate passed the bill in a Christmas Eve vote, Paterson said the expansion would leave New York $1 billion in the lurch. The state faces a $6.8 billion budget shortfall heading into the 2010 fiscal year. “[I] am deeply troubled that the Senate version of the bill worsens what was already an inequitable situation for New York and I will continue to be an advocate on behalf of New Yorkers to ensure we are treated fairly by this critical federal legislation,” Paterson said in a statement. In a letter to House Speaker Nancy Pelosi, Schwarzenegger wrote that the legislation would create a “crushing new burden” for a state with a whopping $20.7 billion budget deficit. “When asked for my support, I was assured that federal legislation would not increase costs to California or include new unfunded mandates,” Schwarzenegger wrote. “Unfortunately, under nearly every scenario we can predict, the federal health care reform legislation being debated would cost California’s General Fund an additional $3 billion to $4 billion annually.”

Rasmussen Reports:

- The economy barely beats out government ethics and corruption as the issue of number one importance to most voters this month. Health care and taxes are a little more on voters’ minds, too. The latest Rasmussen Reports national telephone survey shows that 81% of voters consider the issue of the economy as very important, topping a list of 10 key electoral issues regularly tracked by Rasmussen Reports. But 79% say the same of government ethics and corruption. In third place this month is health care, rated very important by 75% of voters, up from 66% in November. It’s interesting to note, however, that just 40% of voters nationwide now favor the health care plan working its way through Congress, while 55% oppose it.


- The ethanol trade groups, Growth Energy and the Renewable Fuels Association, along with state and local farm groups, have filed a federal lawsuit challenging Calfornia's low carbon fuel standard. The groups' lawsuit alleges that the new rule, which will be phased in starting in 2011, unfairly discriminates against corn-based ethanol made primarily in the Midwest, in violation of the Commerce and Supremacy clauses of the U.S. Constitution.


- Investors yanked billions from Millennium Management after the hedge fund made it easier to redeem their investments. All told, the New York-based hedge fund returned about $3 billion in October, roughly 27% of its assets under management. The firm now runs about $8 billion, Reuters reports. After the third quarter, Millennium changed its liquidity terms, giving investors the option of withdrawing a quarter of their assets every quarter, or all of it annually. The firm imposed no gate or other withdrawal restrictions during the financial crisis.

Chicago Tribune:

- O'Hare International Airport will get full passenger body-scanning equipment next year, perhaps as early as the first quarter, Chicago's aviation commissioner said today.


- Benjamin Franklin's maxim that "nothing is certain but death and taxes" remains true. But a congressional stalemate has left the federal estate tax, the levy on assets left to heirs, in doubt for at least part of 2010. The tax is poised to expire Thursday, though the House and Senate are expected to pass a reauthorization, possibly retroactive to Jan. 1, next year. In the meantime, what might seem like a potential tax savings has become a guessing game for taxpayers, accountants, estate planners and tax lawyers. The impasse also could mean capital gains taxes on more inheritances.


- Oshkosh Corp (OSK) has been awarded a $258.4 million U.S. Army contract for 728 new M1075 "palletized load system" trucks as an add-on to an existing contract, the Defense Department said on Tuesday.

Financial Times:

- The Iranian regime has rounded up hundreds of opposition supporters, including prominent politicians and journalists, in a fresh effort to put down persistent anti-government protests in cities across the country. Iranian authorities also renewed their attack on the west, blaming the unrest squarely on the US and Britain. President Mahmoud Ahmadi-Nejad said the demonstrations had been a “Zionist and American-ordered show”. “Britain will receive a punch on the mouth if it does not stop its nonsense,” said Manouchehr Mottaki, the foreign minister. Among those who have been detained since the weekend are Alireza Beheshti, the senior adviser to the opposition leader Mir-Hossein Moussavi, and Nooshin Ebadi, the sister of Shirin Ebadi, the Nobel Laureate. Karim Sadjadpour, at the Carnegie Endowment for International Peace in Washington, said: “A regime that feels confident about themselves does not resort to imprisoning and assassinating relatives of their political opponents. “The Islamic Republic’s future looks bleak, but they have plenty of brutality left in them and they are capable of doing even more horrendous things in the coming months.” The opposition Green Movement, formed out of support for Mr Moussavi, has managed to sustain its protests since the disputed June presidential election by hijacking national days once set aside for commemorating religious and political events. Meanwhile, the regime signalled that it was considering the arrest of Mr Moussavi himself. Four of the opposition leader’s aides have now been detained since the protests on Sunday when his nephew, Ali Habibi, was shot dead. The Javan newspaper, affiliated to the elite Revolutionary Guards, urged government supporters due to stage a rally in Tehran today to march on Mr Moussavi’s office.

- Regulators in the United States are investigating arcane financial instruments sold by Wall Street during the economic crisis amid accusations that banks duped investors into betting on toxic mortgage assets. The Financial Industry Regulatory Authority (Finra) has started an investigation into synthetic collateralized debt obligations (CDOs), according to people with knowledge of the inquiry. Finra, which monitors broker dealers, already has several investigations open into so-called authentic CDOs. The Securities and Exchange Commission (SEC), whose authority stretches from banks to investment advisers, is also thought to be looking into the complex instruments created by the banks and sold to investors, such as pension funds. Synthetic CDOs have been blamed for multiplying the pain of the sub-prime mortgage meltdown by providing investors with an additional way to bet on the property market.

Daily Express:

- The Tiger Woods scandal is set to be turned into a TV movie with Oscar-winning actor Cuba Gooding Jr lined up to play the bed-hopping golfer. The Jerry Maguire star, 41, is reportedly being eyed for the high-profile role by several Hollywood producers, who are vying to be the first to get a film about the sensational revelations into production in the new year.

Evening Recommendations

- None of note.

Night Trading
Asian indices are -.25% to +.50% on avg.

Asia Ex-Japan Inv Grade CDS Index 94.50 +1.50 basis points.
S&P 500 futures -.20%.
NASDAQ 100 futures -.19%.

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

9:45 am EST

- The Chicago Purchasing Manager report for December is estimated to fall to 55.1 versus a reading of 56.1 in November.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,850,000 barrels versus a -4,841,000 barrel decline the prior week. Gasoline supplies are expected to rise by +1,000,000 barrels versus a -883,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,225,000 barrels versus a -3,027,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.28% versus a +.09% gain the prior week.

Upcoming Splits

- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report and the Treasury's 7-Year note auction
could also impact trading today.

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