Wednesday, January 13, 2010

Wednesday Watch

Late-Night Headlines
Bloomberg:

- Commodity Futures Trading Commission Chairman Gary Gensler pressed Congress to curb exemptions in legislation reining in the $605 trillion over-the-counter derivatives industry, saying loopholes help “big Wall Street banks.” “It is the Wall Street banks that benefit from the so- called end-user exemption from transparency, not the businesses that use derivatives,” Gensler said in prepared remarks to be delivered today to the Atlantic Council in Washington. “Exempting an entire class of transactions would reduce the amount of information that would otherwise be available to the public and market participants.” While the legislation, which the Senate has yet to consider, applies to standard contracts between broker dealers such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., it wouldn’t regulate transactions between those banks and end- users. Such provisions risk leaving as many as 60 percent of standard contracts “in the opaque, bilateral over-the-counter markets,” Gensler said in his remarks. He said “all transactions in standard contracts should be required to be conducted on regulated trading facilities or exchanges.”

- Top 100 Political Donors From 1989-2010 (Table). Following is a comparison of the top political donors from the 1989-2010 election cycle to political party as compiled by the Center for Responsive Politics. The last column is the difference in a firm’s average percentage of donations to Democrats from the 1989 to 2010 cycles compared to its 2010 cycle only donation. For example, Goldman Sachs(GS) has increased its percentage of donations from 64 percent to democrats to 75 percent in the latest cycle only.

- The Federal Reserve Bank of New York may be compelled to hand over documents related to American International Group Inc.’s government bailout after the chairman of a House oversight committee said he will issue a subpoena. Edolphus Towns, the New York Democrat who runs the Oversight and Government Reform Committee, said in a statement that he will issue a subpoena today to get New York Fed records concerning the decision it made to fully reimburse AIG’s partners. Banks including Goldman Sachs Group Inc. and Societe Generale SA were among beneficiaries of AIG’s rescue, called by lawmakers a “backdoor bailout” for financial firms. The New York Fed, run by Timothy Geithner when AIG was rescued, had resisted since November calls to provide documents without a subpoena, Darrell Issa of California, the ranking Republican on the oversight committee, said today in a letter. Geithner made the decision to pay banks 100 cents on the dollar for their AIG swaps tied to subprime mortgages even though the underlying assets had declined in value, according to Barofsky’s audit.

- Oil declined for a third a day after China raised bank reserve requirements to curb a credit boom and prevent the economy from overheating, and as an industry report showed an increase in U.S. crude and distillate stockpiles. Supplies of distillate fuel, a category that includes heating oil and diesel, rose 3.6 million barrels last week, a report from the American Petroleum Institute showed yesterday. “It was a hefty distillate build, especially considering the weather in the northern hemisphere.” China’s move will help remove about 300 billion yuan ($44 billion) of liquidity from the Chinese economy, according to estimates by Xing Ziqiang, an economist in Beijing at China International Capital Corp., ranked the top China local brokerage by Asiamoney magazine last year.

- John Thain, the ousted chief of Merrill Lynch & Co., has held talks about leading CIT Group Inc., the commercial lender that emerged from bankruptcy last month, two people familiar with the matter said.

- Illumina Inc.(ILMN), the San Diego-based maker of equipment to analyze DNA, said it had a record sale of its new systems that can decipher a person’s genetic code for less than $10,000. The shares rose the most in almost a year. Illumina sold 128 of the HiSeq 2000 systems to the Beijing Genomics Institute, a Chinese government research institute. The company also reported preliminary fourth-quarter sales that topped analysts’ estimates.

- New Jersey Governor Jon Corzine, making his valedictory speech to lawmakers, said the most critical issue facing them and his successor boils down to this: “Everyone’s property taxes are too damn high.” In his final State of the State address, seven days before he cedes the office to Republican Christopher Christie, Corzine expressed disappointment that he was unable to win another four years in office. He leaves with a record 58 percent disapproval rating among voters, according to a Fairleigh Dickinson University poll today. The former chairman of Goldman, Sachs & Co.(GS), who pledged to use his Wall Street expertise to end budget deficits and lower the highest property taxes in the nation, urged politicians to “think not just about the next election.”

- Cocaine was responsible for more than 3 percent of all sudden deaths in a Spanish study signaling that no amount of the recreational drug, however small, is safe.

- Skype Technologies SA, the largest provider of international telephone service, said it named former Sony Ericsson Mobile Communications AB President Miles Flint as chairman. Flint, 56, is an adviser to Silver Lake, the private-equity firm that invested in Skype last year. He will lead the Luxembourg-based phone company’s 17-person board of directors, Chief Executive Officer Josh Silverman said in an interview. Skype, bought in November by Silver Lake and an investor group including actor Ashton Kutcher’s firm Katalyst, is placing its software on mobile phones and TV sets and trying to gain corporate customers with high-definition videoconferencing.

- Google Inc.(GOOG) briefed Secretary of State Hillary Clinton last week on its situation in China, a senior U.S. official familiar with the matter said. Clinton, who is in Hawaii on the first stop of an Asia- Pacific trip, may issue a statement soon, the official said, speaking on condition of anonymity.

- House Ways and Means Committee Chairman Charles Rangel said lawmakers are considering paying for health-care legislation by imposing a new tax on unearned income such as capital gains, a measure aimed at wealthier Americans. The New York Democrat, whose panel writes tax law, said the plan to expand the Medicare payroll tax to cover unearned income was preferable to a Senate proposal backed by President Barack Obama to tax the most-expensive health benefits, which labor leaders say will hurt many workers.

Wall Street Journal:

- Taxing Details That Harm Patients by Bob Dole. A new levy on Medicare Advantage plans would hurt lower-income seniors the most.

- Federal prosecutors this week are expected to file formal charges against a Chicago businessman in a broad terrorism probe that includes the 2008 Mumbai terror attack and a scheme to attack a Danish newspaper, people familiar with the matter said. Tahawwur Hussain Rana, a Pakistani-born Canadian citizen, already has been accused by federal prosecutors of plotting with David Headley, also of Chicago, and Pakistani militants to attack the offices of the newspaper, which in 2005 published satirical cartoons of the Prophet Muhammad. Prosecutors filed a criminal complaint against Mr. Rana in October, and the government faces a Thursday deadline to file an indictment.

- A hedge-fund manager known to prosecutors as "Tipper X" in the Galleon Group insider-trading investigation could lead prosecutors to scrutinize hedge funds not previously implicated in the probe, people familiar with the case say.

- In the nation's capital, Senate Majority Leader Harry Reid is on the brink of pushing through a national health program that Democrats rank alongside the creation of Social Security and Medicare. In Nevada, that very achievement is imperiling his re-election prospects.

- Contract chip maker Globalfoundries, owned by Advanced Micro Devices Inc. (AMD) and Abu Dhabi-funded Advanced Technology Investment Co., expects double-digit revenue growth this year, powered by a rebound in the global semiconductor industry after a two-year slump.

- Haiti's strongest earthquake in more than two centuries rocked the Caribbean nation on Tuesday, causing dozens of buildings to collapse and raising fears that many people have died, officials and witnesses said.


CNBC.com:
- The U.S. Federal Reserve will have to raise interest rates as the economy improves or risk losing the public's confidence in its commitment to keeping inflation low and stable, a top Federal Reserve policy maker said on Tuesday.

IBD:
-
Aruba Networks (ARUN) is one big beneficiary of the change. Founded in 2002, the firm has been providing wireless local area networks (LANs) for years. But now 11n is the main driver of growth. In the fiscal first quarter ended Oct. 31, 11n-based gear supplied 42% of shipments.

NY Times:

- A senior Goldman Sachs(GS) executive sent an e-mail message to clients on Tuesday disclosing that the firm’s Fundamental Strategies Group might have shared investment ideas with the firm’s proprietary trading group or some clients before sharing them with others. The e-mail message, obtained by DealBook, demonstrates the various conflicts that Goldman and other firms face in balancing the interests of its various clients and its own trading operation.


McClatchy:

- It's been 77 years since the Pecora Commission combed through cabinets full of banking records, exposed the abuses that led to the stock market crash of 1929 and created a public furor that eased passage of sweeping securities reforms. On Wednesday, as the nation crawls from the depths of the worst economic collapse since the 1930s, Americans will see whether a similar commission that Congress has created to investigate today's crisis will echo that no-holds-barred inquiry of the Great Depression as its 10 members confront the Wall Street giants of the 21st Century. Among leadoff witnesses at the Financial Crisis Inquiry Commission's opening hearing: Lloyd Blankfein, the chairman and chief executive of Goldman Sachs(GS), the Wall Street goliath that largely escaped the subprime mortgage debacle — and may have profited from it — by selling off $40 billion in securities backed by risky home loans while secretly betting that the housing market would plummet.


CNNMoney.com:

- The nation's economic decline led to the biggest drop in electric output since 1938, according to an industry trade group. A new report released Tuesday from the Edison Electric Institute says output fell by 3.7% for its second year of declines in a row. The group said the fall was triggered by the recession and cooler summer temperatures, which were more than 20% lower than normal in many parts of the country.


Business Insider:

- Hedge Funds Are Placing Record Bullish Bets On Oil.

- Why All The Arguments For Walking Away From Your Mortgage Are Pathetic. The bottom line for me is that just because we're angry at banks, doesn't mean that it's okay to do anything and everything to get back at them--much less a good idea. Our response should be targeted at the things they did wrong (like lending money to people who probably couldn't pay it back), and should cause fewer problems for the general public than it solves. Voluntary defaults fail on both counts.


Business Week:

- U.S. stocks may keep rallying after the biggest annual gain since 2003 because Dow Jones indexes tracking industrial and transportation companies hit simultaneous highs, according to followers of Dow Theory.

- The rub on Jeff Zucker, who heads NBC, has always been that no one could ever figure out what he did to get to the top. The 44-year old was a creature of General Electric. He rose from nowhere, starting as a researcher for the 1988 Olympics, and then as Katie Couric’s producer at The Today Show. Using a combination of moxie and managing upward he jumped to run The Today Show, then sit atop NBC’s entertainment operations, and finally to run the entire NBC operation when Bob Wright retired in early 2007. Well, Jeff, it looks like your luck has run out. The Jay Leno, Conan O’Brien mess will be your undoing, if not within the next few months then when Comcast takes over controlling interest in NBC Universal in the next year or so.

- China is seeking to prevent a flow of “hot money” into the stock and property markets by tightening lending as inflation accelerates, according to CCB International Securities Ltd. “The earlier-than-expected move to tighten will make speculators think twice,” Peter So, Hong Kong-based head of research at CCB International, a unit of China’s second-largest bank, said in a phone interview. “China is taking steps to suppress liquidity. Hot money will flow into the stock and property markets with rising inflation.” The decision indicates rising concern in Premier Wen Jiabao’s government that a continuation of the record 9.21 trillion yuan ($1.35 trillion) of loans in the first 11 months of 2009 will create a bubble in property and stock prices.


Politico:

- It’s hard for some Democrats to believe that the candidate running to replace Ted Kennedy is being attacked over health care reform — in one of the bluest states in the union, no less. But Republican Scott Brown has got Democrats nervous — not just for his opponent Martha Coakley but about the fact that a loss in Massachusetts would be a body blow to Democratic reform efforts in Washington. Republicans are watching public approval of reform continue to tank while their candidates’ poll numbers rise. And they still view the bill’s Medicare cuts, tax increases and lack of transparency as key to a 2010 message that voters should bring GOP checks and balances to a Democratic-run Washington. Brown’s danger to health reform is more than just his messaging — he’s hoping to become the “41st vote” to scuttle a health reform bill in the Senate by denying Democrats their 60-vote majority. It’s not that simple. Even if he manages to upset Coakley — despite some polls showing her with a double-digit lead — Democrats could drag out seating Brown, thanks to a 15-day waiting period to send results to the secretary of state and, then, no deadline for state officials to formally declare a winner. And even if Democrats were unable to negotiate a final bill before Brown was seated, they’d have a last resort: Democrats could try to pass the Senate bill through the House with no changes, sending it straight to President Barack Obama’s desk. But Brown’s threat to health reform is in some ways larger. He’s showing how Republicans can run against reform — something sure to play out in other high-profile campaigns this fall.


Rasmussen Reports:

- Republican candidates have now posted a nine-point lead over Democrats on the Generic Congressional Ballot for the first two weeks of 2010. The latest national telephone survey shows that 45% now would vote for their district’s Republican congressional candidate while 36% would opt for his or her Democratic opponent. Last week, Republicans started the New Year with a nine-point lead, their biggest in several years, while support for Democrats fell to its lowest level in years. Republicans have held the lead on the ballot for over four months now.


CNN:

- The Democratic Party's top donors will be urged Tuesday to open up their wallets for Martha Coakley as party leaders scramble to provide her with the financial resources needed to try and win the late Sen. Edward Kennedy's seat, a Democratic Party source tells CNN. Up to 500 donors are expected to participate in the afternoon conference phone call that will be led by Democratic National Committee Chairman Tim Kaine. Kaine "will make the pitch to the donors and the case against [Republican opponent Scott] Brown," said the source, who spoke on the condition of anonymity. Coakley is also expected to appear on the call where "she will highlight the importance of the race and her own credentials." The goal is to raise "in the significant six-figure range in the next 48 hours," the source added. Separately, the DNC is expected to inject $500,000 into the race, the source noted.


The Official Google Blog:

- Like many other well-known organizations, we face cyber attacks of varying degrees on a regular basis. In mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google(GOOG). However, it soon became clear that what at first appeared to be solely a security incident--albeit a significant one--was something quite different. First, this attack was not just on Google. As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses--including the Internet, finance, technology, media and chemical sectors--have been similarly targeted. We are currently in the process of notifying those companies, and we are also working with the relevant U.S. authorities. Second, we have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves. Third, as part of this investigation but independent of the attack on Google, we have discovered that the accounts of dozens of U.S.-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties. These accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users' computers. These attacks and the surveillance they have uncovered--combined with the attempts over the past year to further limit free speech on the web--have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.


USAToday:

- Tim Westergren doesn't have to beat the drum as loudly anymore. Thanks to the popularity of the iPhone and other smartphones, listenership has quadrupled since 2008 at Pandora, the free online radio service he founded. The private company just had its first profitable quarter and brought in about $40 million in revenue last year. It expects even more growth this year.


Reuters:

- FACTBOX - Google's(GOOG) footprint in China. Google does not break out Chinese revenue figures, but Collins Stewart analyst Sandeep Aggarwal estimates Google generates about $200 million in annual sales from China. JP Morgan has estimated Google would generate about $600 million in revenue from China in 2010.


Telegraph:

- US Must Cut Spending to Save AAA Rating, Warns Fitch. Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders. Brian Coulton, the agency's head of sovereign ratings, said the US is shielded for now by its pivotal role in global finance and the dollar's status as the key reserve currency, but the picture is deteriorating fast enough to ring alarm bells. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US's 'AAA' status", he said. Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics. The rating alert is a reminder that fiscal stimulus and bank rescues across the world have merely shifted private debt on to public shoulders. The bail-outs looked deceptively 'costless' at the time, but the damage to sovereign states may take years to repair. The US Treasury says interest payments as a share of GDP will rise to 3.6pc by 2016, the highest since data began in 1940 – when it was 0.8pc.


Guardian:

- The most brazen disdain for democracy in modern times. Bumper banker bonuses are back. And what is it really, if not grand-scale theft - from treasuries, customers and taxpayers. There will be a tidal wave of rage. Over the next two weeks the executives of the leading British and American banks will announce that some £50bn is to be taken from accumulated profit and handed over, not to shareholders or taxpayers, but to themselves. It will be the most outrageous contempt of ­democratic authority in modern times. The sums will be breathtaking, starting with Friday's predicted payout of £18bn at the American bank, JP Morgan Chase(JPM). This is almost exactly what it cost the US taxpayer to rescue the bank a year ago. A similar sum is predicted at Goldman Sachs(GS). This is happening at the heart of the western economy that has just endured its worst crash for 30 years, almost entirely through the doings of these banks and executives.


Evening Recommendations

Citigroup:

- Reiterated Buy on (FORM), target $30.

- (GOOG) - We believe that from an investment perspective legal/political challenges in China over the last few years have significantly limited financial/valuation expectations for Google in China. Thus, as a first pass, we view recent developments as a modest - not material - negative development for (GOOG). Target $640.


Night Trading
Asian indices are -2.25% to -.50% on avg.

Asia Ex-Japan Inv Grade CDS Index 91.0 +5.5 basis points.
S&P 500 futures +.19%.
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?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling


Earnings of Note
Company/Estimate
- (ZZ)/.02

- (CLC)/.46

- (JEF)/.36

- (AMR)/-1.19

- (KMP)/.49


Economic Releases

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil build of +1,500,000 barrels versus a +1,329,000 barrel gain the prior week. Gasoline supplies are expected to rise by +1,700,000 barrels versus a +3,737,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,300,000 barrels versus a -233,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a -.41% decline the prior week.


2:00 pm EST

- The Monthly Budget deficit for December is estimated to widen to -$92.0B versus -$51.8B in November.

- Fed's Beige Book


Upcoming Splits

- None of note


Other Potential Market Movers
- The Fed's Evans speaking, Treasury's 10-year note auction, weekly MBA mortgage applications report, (MON) R&D update, Goldman Energy Conference, Needham Growth Conference, (DPZ) investor day and the JPMorgan Healthcare Conference
could also impact trading today.


BOTTOM LINE: Asian indices are lower, weighed down by banks 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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