Thursday, January 21, 2010

Thursday Watch

Late-Night Headlines
Bloomberg:

- Developing Asian economies face the risk of asset bubbles or overheating as the region’s growth outpaces the rest of the world this year, the World Bank said.

- Wall Street Fix Is In at Bank-Crisis Coroner. When Fannie Mae hired former U.S. Senator Warren Rudman in 2004 to investigate how its accounting practices had gone awry, his law firm’s final report took 17 months to complete and cost the company more than $60 million. Compare that with the enormous task before the Financial Crisis Inquiry Commission, the 10-member investigative panel formed last year by Congress and headed by former California Treasurer Phil Angelides. The deadline for its final report is Dec. 15, less than 11 months away, and its budget is $8 million. Yet it’s supposed to be covering far more ground, and it’s still just getting started. In addition to investigating the causes of Fannie Mae’s 2008 meltdown, the panel is charged with examining the failures or near-deaths of at least 10 other major financial institutions, including Lehman Brothers Holdings Inc., American International Group Inc. and Citigroup Inc. Those autopsies aren’t even the commission’s primary mission, though. That would be to examine the many causes of the financial crisis at large. The statute that created the commission says its report specifically must tackle the role of regulators, monetary policy, accounting practices, tax policy, fraud, capital requirements, credit raters, executive pay, derivatives and short selling -- plus a dozen other required areas of study. So what are the odds the commission can conduct all these investigations by mid-December and do a thorough job? About zero, which clearly was Congress’s intent all along. The crisis commission tried to put on a show anyway last week when it called top government regulators and Wall Street chief executive officers to testify, including Lloyd Blankfein of Goldman Sachs Group Inc. and Jamie Dimon of JPMorgan Chase & Co. Having refrained from exercising their subpoena power so far, though, the commission’s members lacked ammunition to ask probing questions and lobbed softballs to the witnesses. No new facts of any significance emerged from the two days of testimony. That shouldn’t have been surprising, because the commission hadn’t done any investigative work to speak of before the hearings. It was still assembling its staff last month and didn’t even get its Web site up and running until a week ago. This is a job for experienced prosecutors, not blue-ribbon political appointees. For instance, there was this question by Angelides to Blankfein: “Can you tell me very specifically what are the two most significant instances of negligent, improper and bad behavior in which your firm engaged and for which you would apologize?” Blankfein’s response, which I’ll paraphrase loosely here: Yeah right, Phil. To have a chance at a credible effort here, Congress at a minimum needs to amend the legislation that created the commission so it doesn’t have a fixed deadline to release its final report. By statute, the commission will be terminated 60 days after the report is due.

If its investigators get a hot lead in late November, they shouldn’t have to blow it off to meet a publication deadline. And if the commission ever issues subpoenas, the recipients shouldn’t be able to drag them out past the commission’s expiration date simply by refusing to comply and taking the matter to court. Angelides also needs to turn over the conduct of the hearings to a veteran trial attorney who knows how to build cases and cross-examine witnesses properly. A decent budget would help, too. Otherwise, the way it is set up now, this commission might as well be telling the whole country that the fix is in. The bankers and their guard dogs in government must be pleased.

- YouTube, the video-sharing site owned by Google Inc.(GOOG), will offer rentals for five movies from the Sundance Film Festival through the end of the month, marking a break from its strategy of using ads to generate revenue. YouTube plans to introduce films from the 2009 and 2010 Sundance festivals this week in the U.S. The five movies will cost $3.99 to rent, with YouTube splitting the revenue with filmmakers, according to spokesman Chris Dale. The company also will offer a “small collection” of video rentals on topics such as health and education in the coming weeks. “Anything that brings more content to the YouTube community is a good thing,” the company said on its blog. “Making content available for rent will give our partners unprecedented control over the distribution of their work.”

- A new T. Boone Pickens television commercial promoting U.S. energy independence uses “racist tactics” offensive to people of Arab descent and should be pulled, an Arab-American civil rights group said today. The advertisement begins with Pickens reading two sentences which flash across the screen in Arabic, then in English: “Go back to sleep America. The oil crisis is over.” Men with guns stand in front of burning oil fields as “ominous” music plays, according to a statement by the American-Arab Anti- Discrimination Committee in Washington.
- Crude oil may plunge toward $70 a barrel after failing to break resistance around $84 last week, according to technical analysts at Commerzbank AG.

- Investors are so concerned that Greece won't be able to finance its budget deficit that it now costs the government more to borrow for two years than Germany pays to raise funds for 30 years. "Investors are asking very profound questions about the euro zone and Greek solvency," said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London. "Underperformance of the short end is normal when solvency becomes an issue. The current levels are justified."

- Asian stocks slid and the Chinese one-year swap rate rose after China said its economic growth rate accelerated. “The economic data may strong but that will only lead investors to believe the government will impose additional tightening measures, such as interest rate increases,” said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai.


Wall Street Journal:

- Religious Groups Fill Haiti Government Gaps.

- President Barack Obama suggested he's open to Congress passing a scaled-back health-care bill, potentially sacrificing much of his signature policy initiative as chaos engulfed Capitol Hill Wednesday.

- A Michigan judge on Wednesday ordered former Detroit Mayor Kwame Kilpatrick to pay more than $300,000 to taxpayers in the next three months to avoid returning to jail, including nearly a quarter million in loans from a trio of prominent businessman that he hadn't previously disclosed. The flamboyant former mayor has been in and out of court in recent months after being accused by local prosecutors of trying to avoid payment of $1 million in restitution he owes the city stemming from multiple felony convictions, including perjury.

- A mounting backlash against a technique used in natural-gas drilling is threatening to slow development of the huge gas fields that some hope will reduce U.S. dependence on foreign oil and polluting coal. The U.S. energy industry says there is enough untapped domestic natural gas to last a century—but getting to that gas requires injecting millions of gallons of water into the ground to crack open the dense rocks holding the deposits. The process, known as hydraulic fracturing, has turned gas deposits in shale formations into an energy bonanza. The industry's success has triggered increasing debate over whether the drilling process could pollute freshwater supplies. Federal and state authorities are considering action that could regulate hydraulic fracturing, potentially making drilling less profitable and giving companies less reason to tap into this ample supply of natural gas.


MarketWatch.com:

- The Chinese state media is framing Google Inc.'s(GOOG) threat to pull out of the country following a serious cyber-attack as a political conspiracy by the U.S. government, according to a report published Wednesday in the Financial Times. "Accusations in two newspapers that Washington was using Google as a foreign policy tool were echoed by Chinese government officials on Wednesday," according to the report.


NY Times:

- FBI Sting Snares Arms Sellers; Bribes for Foreign Deals Charged.


Washington Times:

- Deaf to deficit warnings. Politicos ignore overspending consequences at their peril.


CNNMoney.com:

- Apple(AAPL) tablet: New details leaked. Among the highlights:


Business Insider:

- Hugo Chavez must be delusional. Russia Today is reporting that Venezuelan dictator Huge Chavez claims the recent earthquakes in Haiti were caused by the United States. More specifically, he claims the U.S. Navy used a weapon that was powerful enough to induce earthquakes. You can watch the video below and draw your own conclusion.


Business Week:

- The Federal Reserve Bank of New York response to a subpoena for documents on American International Group Inc.’s(AIG) bailout was inadequate, said the ranking Republican on the House Oversight and Government Reform Committee. “This production is incomplete,” Darrell Issa of California said today in a letter to Edolphus Towns, a New York Democrat and the committee’s chairman. “It is crucial that this committee understand the full extent of FRBNY’s efforts to cover up the counterparty payments and to prevent and delay other efforts to bring details about these transactions to the public.

- Investors have turned bullish on the U.S. while tempering their enthusiasm for China as they worry about a market bubble there, according to a Bloomberg survey. An overwhelming majority also see a government debt default on the horizon this year, according to a quarterly poll of investors and analysts who are Bloomberg subscribers. Greece is considered the riskiest government, followed by Argentina, Russia, Ireland, Portugal, Italy, Spain and Mexico. China, the world’s fastest-growing major economy, is viewed as a bubble by 62 percent. This time, almost three out of 10 investors said China posed the greatest downside risk, ranking it the second-riskiest market behind the European Union. “We think that China is producing and is building up inventories at a rate that no other country or region can follow at the moment,” said poll respondent Alcibiades Angelakis, head of marketing and research at EPIC Investments in Athens. “This cannot continue for a long time, and we fear that in the second half of this year things will slow down.” Concerns over a potential bubble in China have been mounting. Hedge fund-investor James Chanos, president and founder of New York-based Kynikos Associates Ltd., one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp., has said China looks like “Dubai times 1,000 -- or worse.”

- President Barack Obama tomorrow will offer new proposals on limiting the size and complexity of proprietary trading systems as a way to reduce risk-taking, a senior administration official said. Obama, who is meeting tomorrow with former Federal Reserve Chairman Paul Volcker, will propose the new rules as a part of an overhaul of financial regulations to help limit the size of financial institutions, the official said on the condition of anonymity before the announcement is made.

- Hynix Semiconductor Inc., the world’s second-largest computer-memory chipmaker, reported its biggest quarterly profit in three years after demand for personal computers drove up prices. Fourth-quarter net income was 652 billion won ($573 million), compared with a 1.69 trillion won loss a year earlier, Ichon, South Korea-based Hynix said today in a statement. Sales more than doubled to 2.67 trillion won.


Politico:

- Upping the ante just a day after losing their 60th Senate seat, Democrats moved Wednesday to seek a $1.9 trillion increase in the federal debt ceiling and give the Treasury adequate borrowing authority past November’s elections and into next year. Republicans were caught off guard by the scale of the increase which follows a $290 billion short-term debt increase approved prior to Christmas. “That’s just escapism of the worst sort,” Sen. Judd Gregg (R.,N.H.) told POLITICO. By going now with the higher $1.9 trillion target, Democrats are making a high-stakes gamble that the party can pull together once more to put the debt ceiling issue behind them for this election year. “We have to do this. The alternative is worse,” said Senate Finance Committee Chairman Max Baucus (D—Mont.) in a brief interview.

- Republican Scott Brown’s eye-opening victory in Massachusetts Tuesday has unmistakably framed the problem for President Barack Obama and the Democratic Party: The same forces of disgust with establishment politicians and hunger for change in Washington that vaulted Obama to power 14 months ago can be harnessed with equal success by people who want to stop his agenda in its tracks. The argument that will now consume Democrats is over the remedy — a disagreement that once again opens up the party’s ideological gulf and vastly complicates Obama’s task in trying to push his signature health care agenda to final passage. Is the Massachusetts humiliation a sign that Obama and congressional Democrats should embrace the inevitability of mortal conflict with Republicans and respond with a sharper, more combative policy and political message? Even before Democrat Martha Coakley’s defeat became official, some liberal voices on Capitol Hill and others close to the White House were urging exactly that. Many moderates were urging the opposite, arguing that when Democrats lose a Senate seat that for nearly 50 years belonged to the late Ted Kennedy, they should know they are badly estranged from the center of public opinion. What neither side disputes is that the Massachusetts results are directly relevant to Obama.

- Scott Brown’s stunning victory in Massachusetts Tuesday triggered a wave of dire predictions about health reform, but Brown’s win also could pose a threat to a less obvious aspect of President Barack Obama’s agenda – his anti-terror policies and plans to shut down Guantanamo Bay prison. During the campaign, Brown repeatedly railed against criminal trials for terrorism suspects, took out a television ad opposing giving “rights to terrorists who want to harm us” and declared that he did not view water-boarding as torture. And in his nationally televised victory speech Tuesday night, the senator-elect seized on the issue again. “I believe that our Constitution and laws exist to protect this nation - they do not grant rights and privileges to enemies in wartime,” Brown said. “In dealing with terrorists, our tax dollars should pay for weapons to stop them, not lawyers to defend them.”


Forbes:

- The Cult Of J.Crew(JCG).


Chicago Breaking News:

- A U.S. Representative from Michigan introduced legislation at the capitol on today that would force Illinois to close two Chicago-area locks and dams in an effort to prevent invasive Asian carp from entering Lake Michigan. Camp's legislation forces closure of the O'Brien Lock and Dam and the Chicago Controlling Works, the two area locks Michigan's Attorney General sought to close when he sued Illinois in December. The Carp Act also tasks the Army Corps of Engineers install permanent barriers in the North Shore Channel and the Grand and Little Calumet Rivers to prevent the migration of bighead and silver carp into Lake Michigan. Barriers would also have to be built separating the Des Plaines River from the Chicago Sanitary and Ship Canal and the I&M Canal from the shipping canal to stop the advancement of carp during periods of heavy rain. It also grants the Army Corps new authority to control the migration of Asian Carp through the use of fish toxicants, commercial fishing and netting, harvesting, and other means. In addition the corps are required to initiate two new studies for developing alternative flood control measures and commercial routes. In other Asian carp news Wednesday, the White House formally accepted the offer from the governors of Michigan and Wisconsin to hold a "Carp Summit" at a yet to be determined site in the Midwest or in Washington D.C.


USAToday:

- The springtime spurt in home buying may hit before the snow melts this year as buyers scramble to meet an April 30 tax credit deadline. The spring buying season typically takes off in March and runs through May. But buyers who want to claim this year's tax credit — up to $8,000 for first-time buyers and up to $6,500 for repeat buyers — must have signed purchase contracts by April 30. And they have to complete the deal by June 30. "I expect the buying season will be moved up," says Jim Gillespie, CEO of Coldwell Banker. Sales "are going to take off in February and March and really take off in April.


Reuters:

- EBay Inc (EBAY) forecast 2010 results above expectations after posting double-digit revenue growth in PayPal and its main online marketplaces unit, sending shares up 8 percent.

- Starbucks Corp (SBUX) posted its first quarterly rise in U.S. same-store sales in two years, signaling that recession-weary consumers are spending more on small, daily luxuries. Shares in the company, which also raised its 2010 earnings forecast after fiscal first-quarter profits topped Wall Street expectations, rose nearly 3 percent in extended trade.

- Seagate Technology (STX) blasted past expectations on aggressive cost cutting and buoyant demand for servers and personal computers over the holidays, lifting its shares more than 10 percent.

- Panera Bread Co (PNRA) reported strong fourth-quarter sales on Wednesday, prompting the U.S. bakery-cafe operator to raise its earnings forecast for the same quarter. St. Louis, Missouri-based Panera said sales at established company-owned outlets rose 7.4 percent in the fourth quarter on a calendar basis. For the first 21 days of its January fiscal month, it said sales have increased 9.4. Based on that sales strength, Panera said it now expects fourth-quarter earnings of 94 cents to 95 cents, including a 5 cent per share charge for asset retirement activity. Panera had previously said it expected earnings of 85 cents to 87 cents per share, also including the 5 cent charge.

- Estee Lauder Companies Inc (EL) said on Wednesday it now expects second-quarter earnings and sales to beat its earlier estimates, due to strong growth in Asia and a better-than-expected holiday season in the United States.

- Industrial & Commercial Bank of China (ICBC), the world's biggest bank by market capital, has been ordered by the central bank to increase its reserve ratio by 0.5 percentage point, two sources said on Wednesday. The People's Bank of China has instructed CITIC Bank, the country's seventh-largest bank, and China Everbright Bank, a Beijing-based medium-sized lender, to increase their required reserves by 50 basis points, sources told Reuters earlier on Wednesday. The additional half-point reserve requirement is on top of a 50-basis point increase applicable to all banks that took effect on Monday.

- Logitech International SA, the world's largest computer mouse maker, on Wednesday posted a better-than-expected fiscal third-quarter 2010 profit and said it sees double-digit growth and strong profit growth in the current quarter.

- Environmental and Alaska Native groups have filed a legal challenge seeking to overturn U.S. approval of Royal Dutch Shell Plc's plans to drill up to three wells this year off the shore of Alaska, representatives said on Wednesday. Late on Tuesday, the coalition of groups filed its challenge to drilling in the remote Chukchi Sea. The petition in the 9th Circuit Court of Appeals seeks to void the U.S. Minerals Management Service's Dec. 7 approval of Shell's plan for wells about 60 miles off Alaska's northwestern coast. The challenge is similar to one the same groups filed last month seeking to overturn MMS approval of Shell's plan to drill a pair of wells in federal waters of the Beaufort Sea.


Evening Recommendations

Citigroup:

- Reiterated Buy on (COV), raised target to $61.

- Reiterated Buy on (DOX), target $35.


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

Asia Ex-Japan Inv Grade CDS Index 101.0 +6.0 basis points.
S&P 500 futures +.26%.
NASDAQ 100 futures +.31%.


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?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling


Earnings of Note
Company/Estimate
- (PPG)/.73

- (ESI)/2.37

- (FCX)/1.75

- (UNH)/.73

- (PCP)/1.63

- (FCS)/.17

- (LM)/.33

- (GS)/5.18

- (BNI)/1.22

- (COF)/.45

- (WDC)/1.36

- (GOOG)/6.44

- (AXP)/.57

- (LUV)/.06

- (UNP)/1.04

- (ELX)/.17

- (AMD)/-.14

- (ED)/.77

- (IGT)/.20

- (ISRG)/1.70


Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to fall to 440K versus 444K the prior week.

- Continuing Claims are estimated to rise to 4598K versus 4596K prior.


10:00 am EST

- Philly Fed for January is estimated to fall to 18.0 versus 22.5 in December.

- Leading Indicators for December are estimated to rise +.7% versus a +.9% gain in November.


11:00 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,400,000 barrels versus a +3,699,000 barrel gain the prior week. Gasoline supplies are expected to rise by +2,000,000 barrels versus a +3,791,000 barrel gain the prior week. Distillate inventories are estimated unch. versus a +1,353,000 barrel increase the prior week. Finally, Refinery Utilization is expected to fall by -.5% versus a +1.44% rise the prior week.


Upcoming Splits

- (CTRP) 2-for-1


Other Potential Market Movers
- The (WPI) analyst day, (WGL) analyst meeting and the (SGMS) analyst day
could also impact trading today.


BOTTOM LINE: Asian indices are mostly lower, weighed down by shipping and commodity stocks in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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