Monday, March 15, 2010

Today's Headlines


  • Pound Bears Bet More Than When George Soros Beat BOE. Futures traders are more bearish than ever on sterling amid concern that the currency’s worst annual start in 13 years will continue as the U.K.’s budget deficit approaches the Greek shortfall that roiled the euro. Wagers on the pound weakening against the dollar outnumber futures that profit on a rise by eight times more than when George Soros made $1 billion betting against the currency in 1992, the year Prime Minister John Major’s Conservative government was forced to withdraw from the European Exchange Rate Mechanism. “The risk of a U.K. double dip is substantial,” said Hans-Guenter Redeker, London-based head of foreign-exchange strategy at BNP Paribas SA, which predicts an additional 13 percent drop to $1.31 by the end of 2010. “Sterling is increasingly trading like an emerging-market currency with rising bond yields no longer working in favor of the currency.”
  • Goldman Sachs(GS) Demand Collateral It Won't Dish Out. Goldman Sachs Group Inc. and JPMorgan Chase & Co.(JPM), two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business. Both New York-based banks are demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing. That’s money it can reinvest in higher-yielding assets. “If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”
  • Copper Falls to Two-Week Low on Concern Chinese Demand May Wane. Copper fell to a two-week low on concern that demand from China, the world’s largest user, may weaken because of steps aimed at cooling economic growth. Economists from Morgan Stanley said China’s central bank may boost interest rates as early as April. “The market is freaked out right now about a tightening policy in China,” said Matthew Zeman, a LaSalle Futures Group trader in Chicago. “If stimulus efforts are withdrawn too early, it could stifle what little momentum the global economy has.”
  • China's Shanghai Index May Drop to 2,500, Guotai Says. China’s benchmark stock index may fall a further 17 percent to 2,500 in the first half as the government steps up measures to cool growth, according to Guotai Junan Securities Co., the nation’s second-largest brokerage. The Shanghai Composite Index, which has declined 9.2 percent this year, may extend losses as interest rates rise and the government increases reserves banks need to set aside for loans after consumer prices and fixed-asset investment climbed more than estimated, said Zhang Kun, a strategist at the Shanghai-based brokerage, in a telephone interview today. “
  • Buy Real Put Options to Hedge Elections, BofA Says. Bank of America Corp. recommended clients buy real put options to hedge against the risk that Brazil’s presidential election in October will spark a “short- lived” slump in the currency. “We do not believe the upcoming presidential elections should be treated as a non-event, as markets seem to be doing right now,” analysts led by Sao Paulo-based Virgilio Castro Cunha wrote in a note today. “The market currently offers attractive hedging opportunities.” Investors should buy nine-month put options, which give them the right to sell the currency, at a strike price of 1.95 per dollar, the analysts wrote. President Luiz Inacio Lula da Silva’s chosen successor, Cabinet Chief Dilma Rousseff, has narrowed to single digits the lead of Sao Paulo state Governor Jose Serra, a member of the opposition Social Democracy Party, in opinion polls.
  • Bank of America(BAC), JPMorgan(JPM) Lead Improvement in Late Card Loans. Five of the six biggest U.S. credit-card lenders, led by Bank of America Corp. and JPMorgan Chase & Co., said late payments fell or held steady in February, signaling a retreat from record industry losses. Payments at least 30 days overdue, an indicator of future write-offs, dropped to 7.23 percent, from 7.35 percent in January, Charlotte, North Carolina-based Bank of America said today in a federal filing. New York-based JPMorgan said late payments declined to 4.67 percent from 4.75 percent. Overdue loans fell to 5.51 percent from 5.8 percent at McLean, Virginia-based Capital One Financial Corp., and to 5.5 percent from 5.55 percent at Discover Financial Services, in Riverwoods, Illinois. American Express Co. said payments at least 30 days delinquent were unchanged at 3.6 percent.
Wall Street Journal:
  • Ex-U.K. Military Leader Pushes Europe on Defense Capability. The former deputy commander of the multinational forces in Iraq has warned that Europe needs a more unified defense capability if it is to continue to contest a role on the world stage. Lt. Gen. Sir Robert Fry said he was no longer convinced in the assumption that the U.S. would continue to be Europe's prime strategic partner under any circumstances. Gen. Fry, director of operations in the British Ministry of Defense post 9/11, said that in the emerging new world order, Europe should be looking to create conventional forces that could be deployed under a European banner. In an interview with The Wall Street Journal Europe, he said that in an increasingly polarized world, Europe needs a better defined and more unified European defense capability.
  • Chinese Censorship of Google(GOOG) Issue Betrays Concerns. Chinese authorities have been explicit and unwavering in their disapproval of Google’s threat to disobey their censorship regulations on its Chinese search site, The company will have to “bear the consequences” for making such an “irresponsible” move, the Minister of Industry and Information Technology said last week. Behind the scenes, however, there are signs that officials realize that their view on Google (GOOG) may not be superpopular. The Communist Party’s Propaganda Department issued requests to media outlets on Friday to halt their coverage of the possible closure of Google’s Chinese Web site, says a Chinese journalist familiar with the situation. Chinese news Web sites have also been told they will be required to use only official accounts of the situation if is closed, another individual with knowledge of that order said.
  • Accounting Shift Enables China to Shrink Deficit Figure. China's finance ministry changed the accounting for some government spending this year in a way that allowed it to report a planned budget deficit below the symbolic level of 3% of gross domestic product, an examination of budget documents shows. In the budget report it submitted to the legislature earlier this month, China's Ministry of Finance estimated the total budget deficit for 2010 at 2.8% of GDP, "basically the same as last year." A strict cash accounting of government expenditures, however, would push the 2010 deficit up to 3.5% of forecast GDP.
  • Hedge Funds, Proprietary Traders Target Social Media For Algos. Hedge funds and proprietary trading shops are working to automate trading on information and sentiment from the blogosphere and Twitter, an effort that could make social media even more influential. The move reflects the continued evolution of automated trading through computer algorithms, with social media being targeted as the latest potential goldmine that could give trading firms an edge. Companies have already been selling feeds for several years that deliver news data directly to automated trading programs. But efforts to do the same with information from blogs have not been as successful. Some leading hedge funds and proprietary trading shops are believed to be doing some amount of automated trading on information from social media already. But Alacra, an aggregator of data from traditional media and blogs, has a product that could make the practice much easier and more widespread. Alacra on Tuesday will launch its PulsePro, a technology suite geared to help humans make more informed business and trading decisions. Meanwhile, there are half a dozen firms, mostly hedge funds, testing a feed of sentiment ratings generated through the product for automated trading. "This is part of a larger trend to utilize unstructured content as an input for various types of trading signals," said Paul Rowady, senior analyst at Tabb Group, a financial markets research firm. He said while the trend began primarily with content from news organizations, social media represents "a natural extension of the trend." Cathers noted some traders use Google (GOOG) Insights--which monitors buzz across the Internet--"as another item in their arsenal." Message boards and StockTwits are other tools firms sometimes use to get a handle on the buzz for stocks they are trading. Alacra's PulsePro tries to tackle the issue in several ways. First, it only looks at blogs the company deems credible. The blogs are combined with articles from traditional media companies for a total of about 3,000 sources. Rather than trying to codify all the text within each source, it focuses on specific items such as quotes from well-reputed Street analysts and C-level executives. Sentiment ratings are assigned based on the language used. Through backtesting, Alacra has found the ratings generated by its product can lead movements in stock prices by about one to three weeks for large-capitalization stocks. In turn, hedge funds and proprietary traders are interested in the feed despite that it won't work anywhere near the lightning-fast speeds they've been achieving for much of their other computer-based trading. Alacra, which now generates almost $20 million in annual revenue, ultimately expects PulsePro to bring in tens of millions of dollars a year.
  • Loan Squeeze Thwarts Small-Business Revival.
NY Times:
  • China Uses Rules on Global Trade to Its Advantage. With China’s exports soaring, even as other major economies struggle to recover from the recession, evidence is mounting that Beijing is skillfully using inconsistencies in international trade rules to spur its own economy at the expense of others, including the United States.
The Business Insider:
Detroit News:
  • Ford(F) Survey Shows Employees Optimistic About Future. Ford Motor Co.'s latest internal employee survey shows morale is up sharply and employees' confidence in the company's future has reached an all-time high. That is according to Ford's latest quarterly report card, a copy of which was obtained by The Detroit News. It shows that 89 percent of employees have a positive outlook, compared to less than 55 percent in the middle of 2008. The survey was conducted in December. Ford was the only U.S. automaker to pass on federal bailout and the only one to avoid bankruptcy. Despite an overall decline in car and truck sales, it gained 1.1 percentage points of market share in the United States last year. That helped the Dearborn automaker earn more than $2.7 billion -- its first annual profit since 2005. Over the past year, Ford's stock has soared to levels not seen since the end of 2004, and the company has restored some of the employee benefits it previously cut.
Washington Post:
  • Rep. Paul Ryan on What Real Health Reform Should Look Like. Today, the House Budget Committee is to mark up a "reconciliation" vehicle, initiating the greatest expansion in government and entitlement spending in a generation through a partisan process to push "health-care reform" across the finish line. Despite claims of transparency and calls for a "simple up-or-down vote," there is nothing simple about this process. This convoluted legislative charade demonstrates how far the Democratic majority has wandered from real health-care reform and cost control, employing any means to achieve political victory. Through any analytical lens, the legislation will not address the central problem of skyrocketing health-care costs. The Congressional Budget Office estimates that families' premiums could rise 10 to 13 percent; private-sector actuarial estimates top these already high numbers. The higher costs are driven by federalizing the regulation of insurance, narrowing consumers' options and reducing competition among providers. The health-care market would be dominated by government programs and the largest insurance companies, operating as de facto government utilities. Rather than tackle the drivers of health inflation, the legislation chases the ever-increasing premiums with huge new subsidies. Already, Washington has no idea how to pay for the unfunded promises in Medicare, Medicaid and Social Security -- and creating this new entitlement would accelerate our path to fiscal ruin. When you strip away the double-counting, expose the hidden costs that must be funded and look at the price tag when the legislation is fully implemented, the claims of deficit reduction are as hollow as claims of cost containment.
  • February Mac Sales Up 43%, Apple(AAPL) on Track for 2.9M in Quarter. New retail sales data shows Apple has continued to have strong Mac and iPod sales at the start of 2010, with February's numbers showing significant year-over-year growth. Analyst Gene Munster with Piper Jaffray issued a note to investors Monday afternoon detailing the latest retail sales data from the NPD Group. Mac sales in the month of February were up 43 percent for the month, which followed a similarly strong January increase of 36 percent. In all, Mac sales for the first two months of 2010 are up 39 percent year over year. The latest retail data suggests that Apple will sell between 2.8 million and 2.9 million Macs in the March quarter, which is above Wall Street's consensus of 2.7 million Macs. Strong Mac sales were accompanied by better-than-expected iPod sales as well, influencing Munster to call February an "impressive" month for Apple. iPod sales in the first two months of 2010 were up 7 percent, an increase in sales for the first time in over a year. Piper Jaffray has maintained its overweight rating for AAPL stock, and a 12-month price target of $284.
Washington Times:
  • Justice, CIA Clash Over Probe of Interrogator IDs. The CIA and Justice Department are fighting over a secret investigation into a controversial program by legal supporters of Islamist terrorists held at Guantanamo Bay that involved photographing CIA interrogators and showing the pictures to prisoners, an effort CIA officials say threatens the officers' lives. The dispute prompted a meeting Tuesday at CIA headquarters between U.S. Attorney Patrick J. Fitzgerald and senior CIA counterintelligence officials. It is the latest battle between the agency and the department over detainees and interrogations of terrorists. Attorney General Eric H. Holder Jr. angered many CIA officials and Republicans in Congress by reopening an investigation last August into whether CIA interrogators acted illegally in questioning senior al Qaeda detainees. According to U.S. officials familiar with the issue, the current dispute involves Justice Department officials who support an effort led by the American Civil Liberties Union to provide legal aid to military lawyers for the Guantanamo inmates. CIA counterintelligence officials oppose the effort and say giving terrorists photographs of interrogators has exposed CIA personnel and their families to possible terrorist attacks.
  • 43% Favor Health Care Plan, 53% Oppose. Democrats in Congress are vowing to pass their national health care plan with a vote in the House possible by the end of this week. But most voters still oppose the plan the same way they have for months. A new Rasmussen Reports national telephone survey finds that 43% favor the health care plan proposed by President Obama and congressional Democrats, while 53% oppose it. Those findings include 23% who Strongly Favor the plan and 46% who Strongly Oppose it.
  • Health Care's Family Feud. To understand the machinations behind Monday’s health care announcements, imagine an unhappy young couple trying to cut corners, all the while chaperoned by well-meaning, buttinsky aunts who keep bumping into one another. House and Senate Democrats are the distrustful couple; the Congressional Budget Office and Senate parliamentarian the two strait-laced aunts with conflicting advice on the do’s and don’ts that lie ahead. And as the House Budget Committee kicked off the process Monday afternoon, the rampant confusion is a lesson in the fact that cutting corners is never a good start in Congress.
  • Homestretch Scramble for House Votes on Health Care. Barack Obama faces the stiffest test of his first-term agenda — and a defining moment in his presidency — as Democratic Party leaders mount a fevered campaign this week to round up votes for a historic health care bill. Two top aides — senior adviser David Axelrod and press secretary Robert Gibbs — said Sunday the votes will be there. Other Democrats aren’t so sure.
  • Russia Corruption "May Force Western Firms to Quit". Extortion by corrupt officials in Russia has got so bad that some Western multinationals are considering pulling out altogether, the head of a U.S. anti-bribery group said in an interview. Alexandra Wrage, whose non-profit organization TRACE International advises firms on how to avoid bribery, told Reuters the "rampant endemic" corruption in Russia was much worse than in other big emerging economies."My recommendation is: 'Maybe you should reconsider doing business in Russia,'" she said. "I am considerably more optimistic about Nigeria than I am about Russia on this issue." Berlin-based NGO Transparency International rates Russia joint 146th out of 180 nations in its Corruption Perception Index, saying bribe-taking is worth about $300 billion a year.
  • Ex-NY Bank President First Accused of TARP Fraud. The former president of New York's privately held Park Avenue Bank was arrested and charged on Monday with being the first person to attempt to steal from U.S. government bailout funds in the financial crisis. A 10-count criminal complaint accused Charles Antonucci of devising "an elaborate round-trip loan transaction" that he told others was his own $6.5 million investment in the bank, misleading state bank regulators and the Federal Deposit Insurance Corporation (FDIC). The charges filed in Manhattan federal court said Charles Antonucci "made material and false statements" in the bank's application for $11.2 million from TARP, the Troubled Asset Relief Program.
  • U.S. Builder Confidence Slips in March. U.S. home-builder sentiment fell unexpectedly in March, hit by lack of credit for new projects and a flood of foreclosed properties. The NAHB/Wells Fargo Housing Market index fell two points to 15 in March, the group said in a statement. Economists polled by Reuters had expected sentiment to remain steady at 17.
Financial Times:
  • Ford(F) Expects More Buyers to Shun Japanese Cars. Alan Mulally, Ford Motor’s chief executive, expects to pick up more market share in the US as the carmaker focuses on quality and freshening up its product range while rival Toyota grapples with a global products recall. Mr Mulally, who joined Ford from Boeing more than three years ago, said the carmaker had increased market share in 14 of the past 15 months in the US, selling more cars than General Motors and Toyota for the first time since 1998.“We’re continuing to pick up more and more new Ford customers from our competition,” Mr Mulally said in an interview with the Financial Times in New Delhi, when asked about the Toyota recall. “We’re getting a lot of customers that before had selected Japanese products.” Mr Mulally said it was too early to quantify the impact of the Toyota’s recall of more than 8m cars in relation to faulty accelerator pedals, jamming floormats and braking problems. But he added that last year 30 per cent of Ford’s new customers had migrated over from Japanese cars. Ford sold 43 per cent more vehicles year-on-year in the US in February, or 142,285 units, pushing it up to the number one position. Some analysts predict Ford could this year maintain a lead on Toyota and GM, which has been restructuring following its government-backed bankruptcy last year.
  • VTB Group, Russia's second-largest bank, has more than $2 billion in overdue loans, an increase of 50% in the last year, citing calculations based on data provided by the lender.
la Repubblica:
  • Greece will choose to abandon Europe's single currency, and Spain, Portugal and Italy may eventually do the same, economist Allen Sinai said. "Greece's growing deficit and debt are excessive and there's no hope," Sinai, president of Decision Economics Inc. in New York, said.
  • Israel Envoy: U.S. Ties at Their Lowest Ebb in 35 Years. Israel's ambassador to the United States, Michael Oren, has told the country's diplomats there that U.S.-Israeli relations face their worst crisis in 35 years, despite attempts by Prime Minister Benjamin Netanyahu's office to project a sense of "business as usual." Oren was speaking to the Israeli consuls general in a conference call on Saturday night. "The Obama Administration's recent statements regarding the U.S. relationship with Israel are a matter of serious concern," said AIPAC in a statement issued on Sunday. AIPAC is considered the most influential pro-Israel pressure group in the United States. "AIPAC calls on the administration to take immediate steps to defuse the tension with the Jewish State," the statement said. "The Administration should make a conscious effort to move away from public demands and unilateral deadlines directed at Israel, with whom the United States shares basic, fundamental, and strategic interests," the AIPAC statement said. Earlier Sunday, Netanyahu continued to consult with the forum of seven senior cabinet ministers over a list of demands that U.S. Secretary of State Hillary Clinton made in a telephone conversation Friday. Haaretz has learned that Clinton's list includes at least four steps the United States expects Netanyahu to carry out to restore confidence in bilateral relations and permit the resumption of peace talks with the Palestinians:

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