Tuesday, January 26, 2010

Today's Headlines

Bloomberg:

- Wall Street is marketing derivatives last seen before credit markets froze in 2007 as the record bond rally prompts investors to take more risks to boost returns. Bank of America Corp.(BAC) and Morgan Stanley(MS) are encouraging clients to buy swaps that pay higher yields for speculating on the extent of losses in corporate defaults. Trading in credit- default swap indexes rose in the fourth quarter for the first time since 2008, according to Depository Trust & Clearing Corp. data. Federal Reserve data show leverage, or borrowed money, is rising in capital markets.

- Home prices and consumer confidence in the U.S. climbed further from the depths of the recession, indicating the economy is taking more steps toward recovery. The S&P/Case-Shiller home-price index increased 0.2 percent in November, the sixth consecutive gain, the group said today in New York. The Conference Board’s confidence gauge rose this month to the highest level in more than a year.

- The cost to protect against defaults on U.S. corporate bonds fell for a second day as U.S. consumer confidence rose and fourth-quarter earnings beat analyst forecasts. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, dropped 3 basis points to 92.25 basis points as of 12:02 p.m. in New York, according to CMA DataVision prices. A drop in the index signals a rise in investor confidence.

- Federal Reserve policy makers are considering adopting a new benchmark interest rate to replace the one they’ve used for the last two decades. The central bank has been unable to control the federal funds rate since the September 2008 bankruptcy of Lehman Brothers Holdings Inc., when it began flooding financial markets with $1 trillion to prevent the economy from collapsing. Officials, who start a two-day meeting today, have said they may replace or supplement the fed funds rate with interest paid on excess bank reserves.

- Corn fell for the second time in three sessions on concern that record U.S. production will overwhelm global demand as China seeks to slow economic growth. Limits on lending in China sparked a rally in the dollar, sending crude oil to a one-month low and the Reuters-Jefferies CRB Index of 19 commodities down as much as 1.1 percent. On Jan. 12, the U.S. forecast record world production, signaling ample supplies for makers of livestock feed, sweeteners and ethanol. “Rising supplies are not supportive for a bullish outlook,” said Greg Grow, the director of agribusiness for Archer Financial Services in Chicago. “The dollar is rising on the Chinese moves to slow economic growth, reinforcing a bearish psychology in commodities.”

- Commodities may trail last year’s performance as China’s move to curb bank lending reduces demand, said Charl Malan, who helps manage $2.3 billion at Van Eck Global Hard Assets Fund. “We shouldn’t anticipate 2010 to look like 2009,” Malan said today in a telephone interview from New York. “It’s more of a difficult time for commodities for the next quarter or two.”

- The cost to protect Japanese government bonds from default is likely to surge after Standard & Poor’s cut Japan’s outlook to “negative,” citing diminishing “flexibility” to cope with the nation’s swelling debt load.

- Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month.

- Greece’s 8 billion-euro ($11 billion) debt sale yesterday won’t reduce the risk of another credit downgrade because the government has yet to implement its plan to cut the budget deficit, Moody’s Investors Service said. “We do take financibility of debt into account in a rating, but we always thought that Greece would be able to access financing,” Sarah Carlson, a senior vice president at Moody’s, said in a telephone interview from London today. “Our view has not changed as a result of the syndication. We are very interested in the implementation of the government’s program, so we’ll be watching that closely.”

- U.S. companies donated tens of millions of dollars to Haitian relief after the Jan. 12 earthquake that its government said left 2 million people homeless. Below are selected corporate donations of $100,000 or more.

- President Barack Obama had his only trade request last year shot down by lawmakers. He may be lucky to get any through Congress this year as well. Obama appealed last March for duty-free status on exports from Afghanistan and Pakistan in an effort to boost employment and counter the lure of terrorist groups. After fellow Democrats criticized labor rights in the two countries, the Senate removed the provision from a funding bill. “Could we have a higher priority than to get this done?” Brenda Jacobs, a lawyer at Sidley Austin LLP in Washington representing apparel importers, said in an interview. “It’s a harbinger of how tough it’s going to be on trade.” With last year’s defeat in mind, it’s unlikely Obama will take on Democratic allies and fight for still-pending trade agreements with South Korea and Colombia, Jacobs said. At stake are deals that companies such as Caterpillar Inc. and International Business Machines Corp. say are key to boosting U.S. exports and jobs. “It’s clear that trade is not a priority,” William Lane, Peoria, Illinois-based Caterpillar’s Washington lobbyist, said in an interview. “There is no way to sugarcoat it: The business community is disappointed.”

- Traders pushed options bets that pay off when emerging-market stocks retreat to a 17-month high, speculating China’s actions to restrain inflation will slow the global economic recovery. The ratio of bearish put contracts to bullish calls on the U.S.-listed iShares MSCI Emerging Markets exchange-traded fund climbed to 1.97, the highest level since August 2008, data compiled by Bloomberg show.

- US stocks have more “room to run” this year than in 2004, the second full year of the previous bull market, because they cost less relative to profits, according to FBR Cap[ital Markets. Price-earnings ratios for the S&P 500 Index this month are lower than they were six years earlier. The ratio fell below 19 times earnings in the past week. In 2004, the S&P 500 rose 9% following a 27% surge the previous year. The index was initially valued at about 18 times the average 12-month earnings estimate and fell as low as 15.5 times during the year. Currently, the ratio is about 14 times. FBR expects the S&P 500 to end the year at 1,350, for a 21% gain.


Wall Street Journal:

- Worldwide personal-computer microprocessor shipments jumped 31% during the fourth quarter from a year earlier and rose "modestly" sequentially, indicating that "the market is returning to normal seasonal patterns," according research company IDC.

- Wealthy clients are still wary of dipping back into securities markets after major losses in 2008, preferring to hoard sizable cash piles, Credit Suisse Group's (CS) head investment strategist said at an event Tuesday.

- The new banking restrictions U.S. President Barack Obama proposed last week focus on non-problems and won’t address the issue of systemic risk, according to a former Federal Reserve president who has studied bank bailouts. “I don’t think it will do an effective job of curbing risk-taking by insured institutions, nor does it take on putting uninsured creditors at real risk, which is absolutely critical,” Gary H. Stern, who served as president of the Federal Reserve Bank of Minneapolis for 24 years before retiring in September, told Dow Jones Investment Banker in an interview.


MarketWatch.com:

- Helped by positive economic signals and improved consumer confidence, retailers should see a 2.5% pick-up in sales this year, their biggest gain in three years, after a drop by the same percentage amount last year, according to trade group National Retail Federation.


CNBC:

- The latest congressional budget estimates out Tuesday predict a $1.35 trillion deficit for this year as the economy continues to slowly recover from the recession.


Barron’s:

- Here’s a rundown on some of the Street commentary on Apple’s(AAPL) stock this morning.


NY Times:

- As China Rises, Economic Conflict With West Rises Too.


NY Post:

- Intending to die in the act of destroying a jetliner, Umar Farouk Abdulmutallab instead landed alive in Detroit as a kind of message in a bottle from al Qaeda in the Arabian Peninsula. He knew more about its recruiting, training and operations than anyone who is ever likely to fall into our arms babbling like a scared 23-year-old. But the Obama administration shut him down. It didn't go so far as to tell the Customs and Border Protection officers to cover their ears and try not to listen when Abdulmutallab made incriminating statements on the initial ride to the hospital, but it came close. It had an FBI team inform Abdulmutallab of his right to remain silent, after which he predictably remained silent. This is brazen self-sabotage. We are in a war of intelligence. People risk their lives every day to get the information to understand the terror networks arrayed against us and identify specific threats. Why would we pre-emptively silence a priceless source of timely intelligence?


The Business Insider:

- It sounds as though China's central bank's attempt to engineer a cooldown and end its bubble is going badly.A research report from analyst Yuan Tuck Siew of Axia describes the carnage and confusion:


Cnet news:

- Is Google(GOOG) plotting to encroach upon Facebook's comfy territory? Well, it seems it's launched a sort of social-networking task force: Open-standards guru Will Norris announced on his blog Tuesday that he'll be starting a new job at Google on February 1, joining a few other prominent social-networking thinkers who have also recently made the jump to Mountain View. "I'm happy to announce today that I've accepted a job at Google, working on the newly formed Social Web team," Norris wrote on his blog.


BusinessWeek:

- Apple Inc.’s(AAPL) planned tablet computer is luring publishers with features that Amazon.com Inc.’s Kindle and Sony Corp.’s electronic readers lack, such as color photos, video and author interviews, analysts said. Hearst Corp., McGraw-Hill Cos. and Hachette Book Group have held talks about featuring their content on Apple’s tablet, expected to be unveiled this week, according to people familiar with the matter. The device will allow publishers to create more interactive content, said James McQuivey, an analyst at Forrester Research Inc. in Cambridge, Massachusetts. “Apple is in a killer position,” McQuivey said. “The majority of reading we do cannot be done on current e-readers. The Apple tablet will be first to make the claim that you can read everything from Sesame Street to Dan Brown to the Atlantic to the Denver Post, all on the same device.” Amazon.com’s Kindle and Sony’s e-readers, which dominate the market today, have black-and-white screens and can’t display video.


StreetInsider.com:

- Piper Jaffray maintains an 'Overweight' rating on Apple, Inc. (AAPL), raises price target from $279 to $280. Piper analyst says, "Revenue guidance was above our numbers for only the third time in 15 quarters (1% ahead of our estimate). On average, Apple has guided revenue down by 4% vs. Street estimates over the same period. December results were led by 33% y/y Mac unit growth, vs. our estimate of +26% y/y. As expected, iPhone units came in below Street numbers (8.7m, Street at 9.1m), but we see 100% y/y growth as evidence that the iPhoneConfusion around the new accounting may mitigate the positive impact of a solid quarter, but we expect shares will rebound as investors gain confidence that guidance was, once again, comically conservative...Guidance Conservative Once Again; We Don't Believe Tablet Is In Guidance...Mac Sales Growth Accelerates, Easy Comps Suggest Favorable Growth Will Continue...iPhone Opportunity Still On Track...Given we estimate 40% of iPhones are sold in the US, the AT&T (NYSE: T) quality issue is likely impacting sales. We still believe there is a 70% chance Verizon (NYSE: VZ) gets the iPhone in 2010." opportunity remains on track (ASP's up 2% q/q). iPod units were in-line with the Street, down 8% y/y.


MSNBC:

- Millions of Americans who are struggling to save their homes from foreclosure are trapped in a labyrinth of disappointment and misinformation created by the very institutions they’ve been told are trying to help them. Ten months into the government’s third program in two years to stop a record wave of foreclosures, homeowners, housing counselors, consumer advocates and attorneys working with borrowers report that the latest effort is falling far short of its goal.


Politico:

- Despite grim new deficit estimates, the Senate rejected efforts Tuesday to create a bipartisan commission empowered to force up-and-down votes in Congress on long-term steps to relieve the mounting debt facing the nation. A majority of senators backed the measure on the 53-46 roll call but it still failed after falling seven votes short of the 60 required under prior agreement for passage. President Barack Obama is now expected to step in and by executive order create his own commission, also designed to force action after the November elections.

- More Senate Democrats are pressuring the Obama administration to move Sept. 11 plotter Khalid Sheikh Mohammed’s trial out of New York City and into a military commission. Democratic Sens. Blanche Lincoln of Arkansas and Jim Webb of Virginia signed on to a letter to Attorney General Eric Holder condemning the administration’s November announcement of a criminal trial in Manhattan. “Your decision to prosecute enemy combatants captured on foreign battlefields like Khalid Sheikh Mohammed is without precedent in our nation’s history,” the senators wrote. “Given the risks and costs, it is far more logical, cost-effective, and strategically wise to try Khalid Sheikh Mohammed in the military commissions.” The letter “shows that there is growing support, especially on the Democratic side, against this decision. Going on the record in a letter to the [attorney general] is a big step for both Webb and Lincoln,” a Senate aide said.


Real Clear Politics:

- Political correctness is alive in the Pentagon. Witness "Protecting the Force: Lessons from Fort Hood," a Department of Defense report released last week on the Nov. 5 shootings that left 13 people dead. Granted, drafters of the report had to be careful not to say anything that would help the defense of accused shooter Maj. Nidal Malik Hasan, who has pleaded not guilty. Even so, if the report's purpose was to craft lessons to prevent future attacks, how could they leave out radical Islam? "Our concern is with actions and effects, not necessarily with motivations," former Army Secretary Togo West explained to Time magazine. In that turn-a-blind-eye spirit, the report essentially whited out the many warning signs left by the Army psychiatrist. On the Internet, Hasan compared Islamist suicide bombers with an American soldier who threw himself on a grenade in Iraq to protect fellow troops. As reported in the Times of London, Hasan explained, "Scholars have paralleled this to suicide bombers whose intention, by sacrificing their lives, is to help save Muslims by killing enemy soldiers. If one suicide bomber can kill 100 enemy soldiers because they were caught off guard, that would be considered a strategic victory."


Reuters:

- Capital flows into some emerging markets have created a "concrete risk" of asset bubbles there and in some commodities markets, European Central Bank Governing Council member Ewald Nowotny was quoted as saying on Tuesday. "There are indeed concrete risks of asset bubbles in many emerging countries, caused in particular by significant inflows of short-term capital," Nowotny said in an interview with German newspaper Financial Times Deutschland. He pointed to similar risks on some commodities markets, "where rising demand from Asia, but also speculation, has created the risk that bubbles are building up."

- FACTBOX – Where has the US bailout money gone?

- A new European Commission report has expressed concern about gaps in competitiveness that could undermine confidence in the euro zone and point to tensions related to wage levels and capital flows in the 16-member club. Among other things, the report suggests the real effective exchange rate for Greece, Spain and Portugal is overvalued by more than 10 percent -- an indication of how much wages in these countries would have to fall, or productivity rise, to make them competitive again, given that they are locked into the euro. Large and persistent differences in competitiveness across the zone are a serious concern and can undermine confidence in the single currency, the Commission said.


Financial Times:

- An explosion in trading propelled by computers is raising fears that trading platforms could be knocked out by rogue trades triggered by systems running out of control. Trading in equities and derivatives is being driven increasingly by mathematical algorithms used in computer programs. They allow trading to take place automatically in response to market data and news, deciding when and how much to trade similar to the autopilot function in aircraft. Analysts estimate that up to 60 per cent of trading in equity markets is driven in this way. Concerns have been highlighted by news that NYSE Euronext, the transatlantic exchange operator, has fined Credit Suisse proprietary trading arm for the first time for failing to control its trading algorithms. In the Credit Suisse case, its system bombarded the NYSE’s systems with hundreds of thousands of “erroneous messages” in 2007, slowing down trading in 975 shares. The case was far from isolated, say traders. Regulators say it is unclear who is monitoring traders to ensure they do not take undue risks with their algorithms.


Kommersant:

- OAO Gazprom may reconsider its Shtokman development because North American shale gas is changing market conditions, citing an official. A “revolution” in producing unconventional resources in the US has led to a glut of liquefied natural gas in Europe, citing a report prepared by Deputy Chief Executive Officer Alexander Medvedev for today’s board meeting. The change in North America may “fundamentally” shift world gas markets, the report said.


Business Times:

- Beijing’s real estate dropped “sharply” in the first three weeks of January, citing the official Beijing Real Estate Transaction Management Web site. The number of new housing units sold prior to completion of construction fell 75% from the same period in December to 3,147. Sales of second-hand homes dropped 70% to 8,114 units. The number of all second-hand building units sold, including commercial space, fell by about 66% to 9,006.


Xinhua:
- Shanghai will “seriously” punish illegal land hoarding as part of efforts to regulate its property market, citing Shanghai Mayor Han Zheng.

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