Thursday, March 18, 2010

Thursday Watch

Evening Headlines

  • Build America Bond Extension Passes U.S. House Panel. The House Ways and Means Committee voted 25-15 along party lines to approve a three-year extension of the Build America Bonds program, the fastest-growing part of the $2.8 trillion U.S. municipal debt market. The measure will be sent to the full House for consideration as early as next week. The federally subsidized Build America program, created last year as part of the government’s economic stimulus, is set to expire Dec. 31. President Barack Obama’s fiscal 2011 budget proposed extending and expanding the program while reducing the subsidy to 28 percent. The program has drawn opposition from Senate Republicans. Iowa’s Charles Grassley, the senior member of his party on the tax-writing Finance Committee, criticized Build America for steering “huge underwriting fees” to investment banks. U.S. Senate Minority Whip Jon Kyl, the second-ranking Republican in the chamber, faulted the program for providing higher subsidies to states with lower credit ratings, encouraging them to take on more debt.
  • GE(GE) Tells Obama 'Sell Hard' in Indonesia With China in Pursuit. General Electric Co. Chief Executive Jeffrey Immelt wants Barack Obama to “sell hard” in Indonesia as he extols U.S. expertise in industries such as clean energy. He’ll have to work fast -- Premier Wen Jiabao will make China’s sales pitch in Jakarta next month. President Obama’s trip to his childhood home, already delayed once and currently scheduled for March 23-25, is key to a pledge to boost U.S. exports and “lead the global economy” in providing alternatives to fossil fuels.
  • 'Sinister' German Spy Plan Aimed at Hedge Funds, Analysts Say. Germany’s suggestion that it may order spies to track speculators targeting currencies is “sinister and silly,” according to analysts, who said hedge funds in London and New York would be the targets. Germany’s Finance Minister Wolfgang Schaeuble told the Bundestag on March 16 that the country may have to consider ordering “intelligence agencies to set up surveillance of who is getting together with whom for which kinds of speculative processes, and where” to protect the euro. Schaeuble said that “speculation is increasingly targeting currencies and countries.” His comments followed a report in Spain’s El Pais newspaper last month that the secret service was investigating “attacks” on the country by unnamed investors. Politicians are concerned about the collusion of hedge funds in making bets on currencies and trading in so-called naked credit-default swaps, where they buy protection without owning the underlying debt, according to Jacob Schmidt, founder of Schmidt Research Partners Ltd., a London-based hedge fund advisory firm. Intelligence agencies could use techniques honed in the fight against money laundering and terrorist funding if they wanted, said Vanessa Rossi, a senior research fellow in the international economics program at London’s Chatham House. “Within continental Europe there are those that do think that financial speculators are sort of terrorists,” said Rossi. “In their lexicon it is economic terrorism, so they may view this as more serious than the U.S. or U.K.”
  • Obama Overstates Loan Modifications, Republicans Say. The Obama administration is inflating the success of programs that prevent foreclosures by skewing data on loan modifications and revising the goals, according to House Republicans. Reports on the Home Affordable Modification Program are “glossing over disappointing results” by counting temporary changes toward the goal of permanent relief for as many as 4 million borrowers, said a letter sent yesterday to Treasury Secretary Timothy F. Geithner by Republican representatives Darrell Issa and Jim Jordan. Lynn Turner, the former Securities and Exchange Commission chief accountant, said Treasury’s approach “seems to have taken a page out of the accounting manuals at Enron and Lehman,” referring to accounting disputes that accompanied two of history’s biggest financial collapses. “It has become the culture of Washington and Wall Street, and they reinforce one another.” Turner, now a managing director at forensic accounting firm LECG LLC, is a Democrat who served under former President Bill Clinton. “Rather than acknowledge the program’s failure, Treasury is trying to confuse the American people by counting HAMP’s higher number of temporary modifications -- fewer than one-third of which are successfully converting to permanent ones -- toward the goal,” the letter reads.
  • Greece Keeps IMF Option Alive as Merkel Urges Caution on EU Aid. Greek Prime Minister George Papandreou kept alive the possibility of requesting International Monetary Fund aid as German Chancellor Angela Merkel cautioned against “hasty” decisions on European Union assistance for the country. As long as “Greece is still borrowing at an unreasonably high interest rate, over 6 percent,” the country will keep “all options open” while preferring an EU solution, Papandreou said at a press conference in Brussels today with European Commission President Jose Barroso. European finance ministers this week approved a framework for emergency aid to Greece, while leaving the final go-ahead to government leaders who meet next on March 25-26 in Brussels.
  • Cancun Climate Talks Get Dim Prognosis Nine Months Before Start. Government negotiators are already writing off chances for a global treaty to fight climate change, nine months before the annual talks begin in Cancun, Mexico. Kunihiko Shimada, principal international negotiator at the Japanese Ministry of the Environment, said yesterday a deal this year is “almost impossible.” Jos Delbeke, who spearheads European Union climate policy at the European Commission, ruled out a “comprehensive legal agreement” in 2010. Their remarks call into question whether efforts to curb greenhouse-gas emissions are progressing after failing in Copenhagen in December. President Barack Obama’s energy proposal is bogged down in the U.S. Congress. Without a U.S. commitment, China and India, two of the fastest-growing polluters, may be reluctant to limit greenhouse gases blamed for global warming. “The expectations for a legally binding treaty are diminishing,” Abyd Karmali, global head of carbon markets at Bank of America Merrill Lynch, said in an interview at the Bloomberg New Energy Finance conference in London. “We’re going to be negotiating on climate for the next 50 years,” said Liebreich, founder of New Energy Finance, which Bloomberg LP purchased in December.
  • China's Home Prices Unlikely to Plunge, Hong Kong Builders Say. China’s property prices won’t plunge this year, two of Hong Kong’s biggest developers with operations on the mainland said yesterday, as the World Bank joined economists and hedge fund managers warning of a bubble. “China’s home prices won’t drop too much, as the government can’t allow prices to plunge because the real estate market is an important pillar of the economy,” said Henry Cheng, managing director of New World Development Co. and son of its billionaire founder Cheng Yu-tung. Property prices in China rose 10.7 percent in February, the steepest gain in almost two years, even after banks raised mortgage rates. The surge -- along with a stock market rally, quickening economic growth and inflation -- led the World Bank to say China should raise interest rates to help contain the risk of a bubble, and sparked warnings of a potential crash from hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff. China is in the midst of “the greatest bubble in history,” James Rickards, former general counsel of hedge fund Long-Term Capital Management LP, said this week, warning it “is a bubble waiting to burst.”
  • BRICs Rally Slows Amid Highest Equity Valuations Since 1995. The combination of record mutual fund inflows and the fastest economic growth are failing to lift shares in the largest developing nations with valuations at the highest level versus advanced countries since at least 1995. Emerging-market stock funds lured $86.6 billion in the year through January, the most in 14 years of data, according to Cambridge, Massachusetts-based researcher EPFR Global. MSCI’s developing nation index slid 2.2 percent from this year’s peak on Jan. 11 and pared an 80 percent rally in the previous 12 months that sent its price-to-book ratio to a record 17 percent over the MSCI World Index, data compiled by Bloomberg show. The MSCI emerging index’s 1.9 percent gain this year trails a 3 percent rise in the MSCI World and 4.5 percent climb in the Standard & Poor’s 500 Index. Brazil’s Bovespa has risen 2.6 percent, while the Micex in Russia is up 4.8 percent. India’s Bombay Stock Exchange Sensitive Index has advanced 0.1 percent and China’s Shanghai Composite Index is down 6.9 percent.
Wall Street Journal:
  • Roche CEO Touts Pipeline, Remains Open To More Deals. Roche Holding AG Chief Executive Severin Schwan said the integration of its $46.8 billion takeover of Genentech Inc.(DNA) is "by and large completed," expressed his confidence in the Swiss drug giant's pipeline, and said he remains open to yet more deal-making.
  • Finra's Susan Merrill to Exit as Enforcement Chief. The executive hired by Wall Street to enforce its rules is stepping down after nearly three years in which the organization's disciplinary actions and fines against the brokerage industry have declined, the group said. Susan Merrill, the head of enforcement at the Financial Industry Regulatory Authority, Wall Street's self-regulatory body, hasn't set a departure date and hasn't indicated whether she had another job lined up, people familiar with the matter said.
  • If You Liked Fannie and Freddie...You'll love Chris Dodd's latest reform proposal. It would make many more companies too big to fail and lead to far greater financial consolidation. Think ObamaCare for the financial system. That's one way to understand Sen. Chris Dodd's bill to reform financial regulation. If passed in its current form, the bill would give the government control over the financial system in roughly the same way, and to the same extent, that ObamaCare would take over the nation's health care. There isn't a public option, exactly, but the private firms involved would be so heavily regulated that they would be effectively controlled by the government. The threat comes primarily from the new powers granted to the Federal Reserve and a new regulatory grouping called the Financial Stability Oversight Council (FSOC). Although the Fed failed to anticipate the financial crisis, missed the significance of the developing housing bubble, and did not prevent our largest banks from taking excessive risks, it is rewarded in the bill with authority to control the rest of the financial system.
Fox News:
  • Fox News Exclusive: President Obama. Part 1: The President sits down with FNC's Bret Baier to discuss the health care reform bill. (video)
  • More Americans Disapprove of Obama's Performance Than Approve, Polls Finds. For the first time since President Obama took office, more Americans are unhappy with the job he's doing than are happy with it, according to the latest Gallup poll. In the poll, 47 percent of Americans disapprove of Obama's job performance compared to 46 percent who approve. Obama's job approval rating fell to 46 percent last week, an all-time low for the president. The deteriorating approval rating comes as the president struggles to push his increasingly unpopular health care plan across the finish line with a controversial maneuver that would avoid a GOP filibuster by allowing Congress to pass and adjust the Senate's bill with a simple majority. The plunging rating threatens to weaken the president's influence beyond the health care debate to pass a largely ambitious agenda that includes immigration overhaul, climate change legislation and education reform. It could also put distance between Obama and Democratic lawmakers up for re-election in November who see no benefit in having an increasingly unpopular president stump for them. Obama's campaigning efforts have already failed to help notch victories in gubernatorial races in Virginia and New Jersey and the Senate contest in Massachusetts in replace Ted Kennedy.
  • Company's Software And Hardware Speed Up System Networks. That's where Blue Coat Systems (BCSI) comes in. The Sunnyvale, Calif., company sells application delivery network infrastructure. That's a fancy way of saying the software and systems that connect far-flung people and offices within an organization.
NY Times:
  • Google(GOOG) and Partners Seek TV Foothold. Google and Intel have teamed with Sony(SNE) to develop a platform called Google TV to bring the Web into the living room through a new generation of televisions and set-top boxes. The move is an effort by Google and Intel to extend their dominance of computing to television, an arena where they have little sway. For Sony, which has struggled to retain a pricing and technological advantage in the competitive TV hardware market, the partnership is an effort to get a leg up on competitors. The partners envision technology that will make it as easy for TV users to navigate Web applications, like the Twitter social network and the Picasa photo site, as it is to change the channel. Some existing televisions and set-top boxes offer access to Web content, but the choice of sites is limited. Google intends to open its TV platform, which is based on its Android operating system for smartphones, to software developers. The company hopes the move will spur the same outpouring of creativity that consumers have seen in applications for cellphones. Google is expected to deliver a toolkit to outside programmers within the next couple of months, and products based on the software could appear as soon as this summer. The three companies have tapped Logitech(LOGI), which specializes in remote controls and computer speakers, for peripheral devices, including a remote with a tiny keyboard.
  • Merkel Suggests Evicting Errant Countries From Euro. Chancellor Angela Merkel of Germany, adopting a harsher tone toward Greece than the one expressed by some other European leaders, said Wednesday that Europe needed better rules to police its members, and she tacitly endorsed a proposal to eject wayward countries from the group of countries that use the euro. Speaking before a session of Parliament in Berlin, Mrs. Merkel referred to a proposal made last week by Wolfgang Schäuble, the German finance minister. As she described the proposal, “It would even be possible to exclude a country from the euro zone when over the long term it no longer fulfills the conditions.” “Otherwise, we can’t work together,” Mrs. Merkel said, though she stopped short of explicitly endorsing the idea.
  • TheStreet.Com(TSCM) Says It's Being Probed By SEC. Investment news website Inc said on Wednesday the U.S. Securities and Exchange Commission was investigating the company over the way it recorded revenue at a former subsidiary.
  • O's Middle-Class Squeeze. President is wrong to claim health reform only hurts rich. The president has spent the closing days of the health-care debate making his case to the segments of Americans who will benefit under ObamaCare. But lots of other people will be squeezed under the scheme -- and not the rich folks that President Obama singles out in his stump speeches, but families who are decidedly middle class. Health reform will leave many of them newly priced out of a transformed market for health insurance. The hardest hit won't be those earning more than $250,000 a year -- the group that he says needs to "pay their fair share." Rather, it's families whose combined annual income is around $100,000 who could be crushed under this plan. These folks will be too "rich" to qualify for ObamaCare's subsidies, but probably too poor to easily afford the pricey insurance that the president's plan forces them to buy. Many of these $100K families will be obliged to buy a policy costing an average of $14,700 for the mid-level, "silver" health plan, according to the Congressional Budget Office's estimates. After income taxes, they'll be spending almost a quarter of their net income for health insurance. How can these families make out so badly under ObamaCare? The plan does two things to refashion the market for health insurance and inadvertently stacks it against these middle-class earners.
Rasmussen Reports:
  • 27% Say U.S. Heading in Right Direction. Twenty-seven percent (27%) of U.S. voters say the country is heading in the right direction, according to the latest Rasmussen Reports national telephone survey. This marks a slight uptick from the previous two weeks when voter confidence in the country's current course fell to 25%, the lowest level measured since just before President Obama took office in January 2009. A sizable majority (68%) still believe the nation is heading down the wrong track, but that's down three points from last week when 71% felt that way. The latter finding was the highest level of pessimism measured in 14 months.
  • Republicans Lead Democrats by 10 in Generic Ballot, Highest Lead Yet. Republican candidates have now stretched their lead over Democrats to 10 points in the Generic Congressional Ballot, their biggest lead ever in nearly three years of weekly tracking.
Financial Times:
  • Beijing Warned of Business Damage from Text Crackdown. The warning by the company, which operates the world’s most popular instant messaging service and online games with titles such as Dungeon & Fighter, is an early indication that China’s strict censorship regime could start to damage the country’s internet boom. Over the past 15 months, the Chinese government has stepped up a crackdown on what it calls “harmful content” – a development Google cited as one reason for re-considering its presence in China. The authorities argue that the measures are aimed at pornography and spam, but website closures and text messaging blockages have also hit politically sensitive content. Tencent management said the government’s surprise decision in late November to halt WAP billing – a practice that allows consumers to buy online content and have it charged directly to their mobile phone bills – had also made a dent in the fourth quarter and would do more damage this year. Mr Lau added that attempts by China Mobile, the world’s largest mobile operator, to weed out “bad” content by blocking certain content providers from sending text messages had also produced collateral damage for the industry.
China Securities Journal:
  • China has banned banks from providing loans to developers found to be hoarding land or holding back sales of apartments to wait for higher prices.
Evening Recommendations
  • Reiterated Buy on (NKE), boosted estimates, raised target to $80.
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 90.0 -1.0 basis point.
  • S&P 500 futures +.08%
  • NASDAQ 100 futures +.03%
Morning Preview Links

Earnings of Note
  • (FDX)/.73
  • (ROST)/1.16
  • (PALM)/-.42
  • (SPWRA)/.48
  • (CTAS)/.30
  • (GME)/1.27
Economic Releases
8:30 am EST
  • The Consumer Price Index for February is estimated to rise +.1% versus a +.2% gain in January.
  • The CPI Ex Food & Energy for February is estimated to rise +.1% versus a -.1% decline in January.
  • Initial Jobless Claims for last week are estimated to fall to 455K versus 462K the prior week.
  • Continuing Claims are estimated to fall to 4522K versus 4558K prior.
  • The Current Account Deficit for 4Q is estimated to widen to -$119.0B versus -$108.0B in 3Q.
10:00 am EST
  • Philly Fed for March is estimated to rise to 18.0 versus 17.6 in February.
  • Leading Indicators for February are estimated to rise +.1% versus a +.3% rise in January.
Upcoming Splits
  • (NETL) 2-for-1
Other Potential Market Movers
  • The Fed's Duke speaking, weekly EIA natural gas inventory report, (TQNT) Analyst Day, (GCI) Analyst Meeting, (FST) Analyst Meeting, (TREX) Analyst Meeting and the JPMorgan Gaming/Lodging/Restaurant/Leisure Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares 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.

No comments: