Tuesday, March 23, 2010

Tuesday Watch

Evening Headlines

  • Greek Stalemate Deepens as Trichet Rejects Loan 'Subsidy' Call. Europe’s stalemate over possible aid for debt-encumbered Greece deepened as European Central Bank President Jean-Claude Trichet spoke out against offering low- interest loans for which the Greek government has pressed. Trichet’s demand for stringent terms and German Chancellor Angela Merkel’s push for sanctions against nations that breach deficit limits heightened the chance that Greece will leave a March 25-26 summit empty-handed. That could force Prime Minister George Papandreou to decide whether he’s ready to fulfill his threat and turn instead to the International Monetary Fund. “There shouldn’t be any subsidy element, no concessionary element” in a potential loan to Greece, Trichet told lawmakers in Brussels yesterday. Merkel said in Berlin that there’s no need for European Union leaders to make any “concrete decisions” on Greek aid this week.
  • Biggs Says Stocks Have 'Momentum,' May Rise Another 10%: Video. Barton Biggs, managing partner at Traxis Partners LLC, talks with Bloomberg’s Matt Miller and Carol Massar about the outlook for the U.S. stock market.
  • Texas Beats Other States Out of Recession, Comerica Report Says.
  • AIG Chief Benmosche Nominated to Credit Suisse Board. American International Group Inc. Chief Executive Officer Robert Benmosche was nominated to rejoin the board of Credit Suisse Group AG seven months after he stepped down as a director of the Swiss bank.
  • Health-Care Cost Lies Make Us Sing the Blues: Amity Shlaes. Everyone knows the bill will widen deficits over time. Entitlement and mandate expansions always do. And everyone knows that health-care reform isn’t about fiscal rectitude.
Wall Street Journal:
  • Sallie Mae(SLM) Says Lending Policy Changes Will Cost 2,500 Jobs. Student lender SLM Corp. (SLM) said Monday that changes approved by the U.S. House of Representatives on Sunday that will end federal funding to student lenders will lead it to cut more than a quarter of its workers and shutter the majority of its locations nationwide. In an emailed statement, the lender, best known as Sallie Mae, said, "The student loan provisions buried in the health-care legislation intentionally eliminate private sector jobs at a time when our country can least afford to lose them. We are profoundly disappointed that thousands of student loan originators will soon lose their jobs to less-experienced Washington, D.C., bureaucrats, although the Senate has the power to change this." Spokeswoman Martha Holler said in an email that the company estimates at this point it will have to cut 2,500 of its 8,600 current employees and expects to operate about five to seven locations, down from the 25 it runs now.
  • U.S. Aims to Bolster Overseas Fight Against Cybercime. The alleged Chinese cyber attacks on Google(GOOG) have spurred proposals at the State Department and on Capitol Hill to establish an ambassador-level cybersecurity post and to tie foreign aid to a country's ability to police cybercrime.
  • States Say They'll Challenge Health Bill for Costs, Mandate. President Barack Obama is bumping up against a revolt over the health-care overhaul and its expansion of state-run Medicaid, with 12 states challenging its constitutionality in lawsuits to be filed once he signs it. Florida, Texas and Pennsylvania are among the states claiming the legislation places a fiscal burden on their cash- strapped budgets, according to statements by state attorneys general. The health-care overhaul will make as many as 15 million more Americans eligible for Medicaid nationwide starting in 2014 and will cost the states billions to administer. States faced with unprecedented declines in tax collections already are cutting benefits and payments to hospitals and doctors in Medicaid, the health program for the poor paid jointly by state and U.S. governments. The costs to hire staff and plan for the average 25 percent increase in Medicaid rolls may swamp state budgets, said Toby Douglas, who manages California’s Medicaid program. “We face enormous challenges just sustaining our existing program,” said Douglas, whose state has not joined the lawsuits, in a March 18 telephone interview. “I just don’t see states having the capacity to move forward on these changes in this environment.” For California, with a $20 billion budget deficit, the extra load will cost at least an additional $2 billion to $3 billion annually, said Douglas, chief deputy director for California’s health care programs.
  • Corporate Balance Sheets Show Surprising Strength. Despite a harsh recession and alluringly low interest rates, many companies have shrunk debt and other obligations over the past yea.
Business Insider:
Huffington Post:
  • Why Fannie Mae, Freddie Mac Continue To Cost US Taxpayers Billions. Of all the companies bailed out by the federal government, mortgage finance giants Fannie Mae and Freddie Mac are shaping up as the deepest money pits. A close look at their past and recent financial filings shows why their losses continue to mount. Fannie and Freddie effectively became wards of the government in 2008. The Obama administration had promised to reveal its plans for the agencies last month, but Washington's focus on reforming the banking system pushed them to the bottom of the to-do list. Fannie and Freddie aren't mentioned in either the Senate or House financial regulatory reform bills. Together the two firms have already tapped $125 billion from government lifelines and the Congressional Budget Office predicts they ultimately will drain $380 billion. That would far exceed the final tabs for rescuing the big banks, the automakers or even insurance behemoth American International Group (AIG). "These calls on taxpayer funds are troubling to all of us," Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said in a letter to congressional leaders last month. DeMarco's predecessor at the housing finance agency, Fannie and Freddie's regulator, has acknowledged that taxpayers are unlikely to ever see a full return on their investment.
  • Financial Reform Bill Sent to Senate. The Senate Banking Committee approved sweeping financial reform legislation Monday on a party line vote, with Republicans refusing to offer a single amendment, providing a stark reminder that Democrats still have a long way to go to gain essential GOP support. Hopes had been high that financial reform would avoid the partisan rancor that has marked other major legislation atop the White House agenda. But after months of talks with multiple Republican partners, Senate Banking Chairman Chris Dodd still lacks a single GOP vote for his bill.
Real Clear Politics:
  • ObamaCare is Politically Vulnerable. It's an impenetrable labyrinth of new taxes, benefits, and regulations, passed on the narrowest of possible majorities with more than 10% of the Democratic caucus joining every Republican. Even Wile E. Coyote would be embarrassed by its inefficiencies. Still, the thought among its proponents at the moment is that the legislation, once enacted, cannot be repealed. It will have the benefit of our system's strong "status quo bias." Accordingly, expect yesterday's critics of the filibuster to become its valiant defenders should push come to shove. The status quo bias is a very real thing, and it makes the Republican efforts to modify or repeal challenging. The GOP must control the entire government by January, 2013 to enact major changes to the legislation. By then, the thinking goes among proponents, those with a personal stake in preserving the legislation will be in place to protect it, just as seniors have been on guard against raids on Social Security. Yet it's not that simple. The Democrats crammed a $2 trillion bill into a $1 trillion package by delaying the distribution of most benefits for four years, until 2014. This creates two major political vulnerabilities for ObamaCare.
  • Japan Govt to Face Big Fund Shortage in 2011/12 - Nikkei. Japan's government may need to issue more bonds or drop some spending plans as it faces a shortage of up to 7 trillion yen ($78 billion) in funds in the year to March 2012, the Nikkei newspaper reported. An increase in bond issuance would raise the spectre of a cut in Japan's sovereign ratings as the national debt is nearing 200 percent of its gross domestic product, analysts say. Fitch, Moody's and Standard and Poor's have all warned Japan it faces a ratings downgrade, which could raise the borrowing costs for the most indebted of the industralised nations and rattle investors who are already nervous about Greece's debt and the sovereign risk facing other European nations. "The government has said it will launch a fiscal framework this year, and that could be the trigger for a downgrade if it doesn't go well," said Nobuto Yamazaki, executive fund manager at DIAM Asset Management in Tokyo.
  • Google(GOOG) Reroutes China Search, Beijing Lashes Back.
  • Distressed U.S. Home Sales on the Rise. Purchases of homes in or near foreclosure last month hit the highest percentage of total sales since July 2008, indicating a trend that is closely correlated with falling home prices, according to a survey released on Monday. Distressed properties made up 48.1 percent of home purchases in February, according to the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions.The survey, which polls more than 1,500 real estate agents, found distressed sales were as low as 37 percent in November.
Financial Times:
  • Renminbi Reform is Just the Start for China. The friction between Washington and Beijing over exchange rates is about to get a lot worse. On April 15, the US Treasury will issue the first of two semi-annual currency reports, mandated by law since 1988, in which China may be deemed to be manipulating its currency “for the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade”. If China continues to stand firm in the face of US pressure for policy change, the case will almost certainly go to the World Trade Organisation. More to the point, it will become the most prominent of several bilateral spats, in which the US could threaten to impose across-the-board tariffs on Chinese imports and China could threaten to dump holdings of US Treasury bonds. A major economic dispute between the US and China would be in no one’s interest, least of all China’s, but it looks unavoidable for three reasons.
  • Greece Accuses Germany of 'Squalid Game' in Debt Crisis. Greece has further complicated its chances of an EU rescue package this week, accusing Germany of exploiting the debt crisis to enrich its banks and drive down the euro for global export advantage. "By speculating on Greek bonds and allowing credit institutions to participate in this squalid game, some people are making money," said deputy premier Theodoros Pangalos. "As long as southern Europe is under fire and the euro is falling , they (the Germans) can win massive exports in the rest of the world," he said.
Economic Daily News:
  • Taiwan Semiconductor Manufacturing Co. lifted its estimate for global semiconductor market output to grow by 22% this year from the previous forecast of an 18% increase, citing Chairman Morris Chang.
Securities Times:
  • Chinese companies owned by the central government with overcapacity will be barred from buying shares in commercial banks, citing an official at the China Banking Regulatory Commission. Steel, cement, shipbuilding and coal were among industries named as having overcapacity.
  • Netanyahu tells AIPAC: Jerrusalem is no settlement. Jerusalem is not a settlement, Prime Minister Benjamin Netanyahu told thousands of participants at AIPAC's annual conference here on Monday. The prime minister met Monday with U.S. Secretary of State Hillary Clinton in an attempt to put an end to the crisis that began when the report broke of plans to build 1,600 new units in Ramat Shlomo in East Jerusalem two weeks ago during the visit to Israel of U.S. Vice President Joe Biden. Before Netanyahu left for Washington he asked Housing Minister Ariel Atias not to participate in the dedication ceremony for a new neighborhood in Pisgat Ze?ev in East Jerusalem. Netanyahu made the request in light of the recent tensions between Israel and the United States over construction in East Jerusalem. Atias canceled his participation and the festive ceremony, which could have overshadowed Netanyahu?s Washington visit. Netanyahu informed Clinton that the ceremony had been postponed but also said he would not change government policy on construction in East Jerusalem, which has not changed in the 42 years it has been in Israeli hands. Netanyahu is to meet Tuesday evening at the White House with U.S. President Barak Obama.
Evening Recommendations
  • Reiterated Buy on (CVG), target $15.
Night Trading
  • Asian indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 103.0 -3.0 basis points.
  • S&P 500 futures +.01%
  • NASDAQ 100 futures -.09%
Morning Preview Links

Earnings of Note
  • (SCS)/.00
  • (CCL)/.12
  • (KBH)/-.41
  • (WAG)/.71
  • (JBL)/.27
  • (DRI)/.92
  • (ADBE)/.37
Economic Releases
10:00 AM EST
  • Existing Home Sales for February are estimated to fall to 5.0M versus a reading of 5.05M in January.
  • The House Price Index for January is estimated to fall -.8% versus a -1.6% decline in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Plosser speaking, Fed's Yellen speaking, Richmond Fed Manufacturing report, Treasury's $44B 2-Year Note Auction, weekly retail sales reports, Treasury's Geithner testifying before the House, (RMBS) Analyst Day, Barclays Healthcare Conference, Howard Weil Energy Conference, ABC consumer confidence reading and the API energy inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

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