Wednesday, March 10, 2010

Wednesday Watch

Evening Headlines

  • Shanghai Housing Prices Drop 10% in 1st Week of March. Shanghai’s average housing sale price dropped 10 percent to 18,549 yuan per square meter in the first week of March from the previous week, Shanghai Securities News reported, citing Shenzhen World Union Properties Consultancy Co. Prices for housing in China’s southern city of Shenzhen fell 14 percent to 18,266 yuan per square meter, according to the report.
  • BHP, Fortescue's Port Hedland Ore Shipments Drop 14%. Iron ore shipments from Australia’s Port Hedland, the world’s largest bulk exporting port, dropped to 13.05 million metric tons in February from 15.1 million tons in January. Shipments to China fell to 8.7 million tons, the Port Hedland Authority said on its Web-site, compared with 11 million tons in the previous month.
  • InterMune(ITMN) Wins Panel's Backing for Novel Lung Therapy. InterMune Inc. won a U.S. panel’s backing to introduce the first treatment for a deadly lung disease that afflicts about 100,000 Americans. The recommendation sent shares more than 62 percent higher in extended Nasdaq trading. Outside advisers to the Food and Drug Administration recommended approval of the medicine, pirfenidone, in a 9-3 vote today in Silver Spring, Maryland. The agency usually follows the recommendations of its advisory panels. Shionogi & Co., of Osaka, Japan, sells the product in Japan under the name Pirespa. InterMune, based in Brisbane, California, increased $14.35, or 62 percent, to $37.65 at 5:09 New York time in extended trading after the close of the Nasdaq Stock Market.
  • Carlyle Is Said to Seek Buyers for Arinc; May Fetch $1 Billion. Carlyle Group, the world’s second- largest private-equity firm, hired Goldman Sachs Group Inc.(GS) to seek buyers for its Arinc Inc. defense and aviation business, said people with knowledge of the matter.
  • Marsh & McLennan(MMC) Said to Get Private Equity Bid for Kroll Unit. Marsh & McLennan Cos., the world’s second-biggest insurance broker, received an offer for its Kroll security unit that values the subsidiary at $1.2 billion to $1.5 billion, said a person familiar with the matter.
  • 'Jihad Jane' Indicted in Pennsylvania for Murder Plot. A Pennsylvania woman who used the alias “Jihad Jane” plotted to recruit jihadist fighters and conspired to commit murders overseas, according to an indictment unsealed in Philadelphia. Colleen LaRose, also known as Fatima LaRose, of Montgomery County, Pennsylvania, was charged with one count of conspiracy to provide material support to terrorists, one count of conspiracy to kill in a foreign country, one count of making false statements and one count of attempted identity theft, U.S. Attorney Michael Levy in Philadelphia said today in an e-mailed statement.
  • Allergan's(AGN) Botox Approved by FDA for Muscle Spasms. Allergan Inc.’s Botox wrinkle smoother was approved by U.S. regulators to treat muscle spasms in the elbow, wrist and fingers. Allergan rose as much as $1.65, or 2.7 percent, to $63 in extended trading after the close of the New York Stock Exchange.
  • Abbott(ABT) Agrees to Buy Facet Biotech(FACT) for $450 Million. Abbott Laboratories, maker of the arthritis drug Humira, agreed to buy Facet Biotech Corp. for $27 a share in cash, for a net $450 million, adding experimental medicines in cancer and immunology. The price is a 67 percent premium over Facet’s closing share value today in Nasdaq trading.
  • Biden Condemns Israel Housing Plan as Impediment to Peace Talks. Vice President Joe Biden condemned an Israeli plan to build new houses in East Jerusalem, saying it threatened to undermine a U.S. effort to restart the Israeli- Palestinian peace process that had brought him to the region. In a statement issued hours after he met with Israeli Prime Minister Benjamin Netanyahu in Jerusalem yesterday, Biden said the announcement of the plan “is precisely the kind of step that undermines the trust we need right now and runs counter to the constructive discussions that I’ve had” in Israel.
  • Emerging-Market Stocks May Retreat 15%, Aberdeen Says. Emerging-market stocks will drop as much as 15 percent this year as earnings miss estimates and global growth slows, said Devan Kaloo, who oversees $22 billion at Aberdeen Asset Management Plc. Kaloo, Aberdeen’s head of global emerging markets, said he’s holding fewer Chinese stocks than are represented in the benchmark MSCI Emerging Markets Index because the government’s stimulus program may lead to a banking crisis. Kaloo said he’s “overweight” stocks in Mexico, India and Turkey, “neutral” on Brazilian equities and “underweight” Russia. “The markets will see a correction this year,” Kaloo, whose Aberdeen Emerging Markets Institutional Fund has beaten 93 percent of competitors in 2010, said in an interview in New York. “People get over-optimistic and expect too much out of earnings and global growth.” “From a stock-picking perspective, we can find better opportunities” than China, he said. “The government pumped money into the financial system, but soon they’ll run out of money,” which will hurt the earnings of Chinese companies, he said. Plans for initial public offerings in Brazil will probably push the nation’s stocks lower in the short term, as investors look to buy the new companies’ shares, Kaloo said.
  • Give Congress the Boot to Save Our Great Country: Caroline Baum. The public is mad as hell at Washington: at the corruption, the underhanded deals, the earmarks, the sense of entitlement that comes with lifetime employment. If we don’t want to take it anymore, we can do something about it. We the People of the United States need to make clear to our representatives in Congress, or their challengers, that our vote in November is contingent on what’s-his-name’s support for term limits. No support, no vote. Got it? Senator Jim DeMint, Republican of South Carolina, introduced a “Term Limits for All” constitutional amendment in November. The amendment, co-sponsored by Senators Tom Coburn, Kay Bailey Hutchison and Sam Brownback, Republicans of Oklahoma, Texas and Kansas, respectively, would limit every House member to three terms and every Senator to two. Only with an end to the “era of permanent politicians” will real change come to Washington, DeMint said.
  • Japanese Machinery Orders Declined 3.7% in January. Japan’s machinery orders slipped in January after the biggest jump since 2000, indicating a subdued appetite among the nation’s companies to ramp up capital spending even as manufacturing passed its worst. Orders, a signal of business investment in three to six months, dropped 3.7 percent from December, when they climbed 20.1 percent, the Cabinet Office said today. The government said after the report that machinery demand is “bottoming.”
  • Hedge-Fund Losses Show Euro's Drop Fails to Benefit All Traders.
  • Senate Said to Weigh $50 Billion Fund to Wind Down Failed Firms.
Wall Street Journal:
  • Build America Pays Off on Wall Street. Wall Street firms have received fees exceeding $1 billion in less than a year selling "Build America Bonds" meant to spur jobs in struggling cities, often charging municipalities higher costs than for traditional bond deals. These new bonds were rolled out in April 2009 under President Obama's economic stimulus plan to create jobs building roads, schools and hospitals. Unlike conventional municipal debt, the new bonds are taxable and generally carry higher interest rates. The U.S. pays 35% of the interest, so the bonds have enabled local governments to borrow during a credit crunch and save money at the same time, making the higher costs a wash for them. The underwriting fees come as Wall Street continues to recover even as many municipalities remain in poor financial shape. The Wall Street fees are "surprisingly high," says Edward Prescott, a Nobel-prize winning economist at the Federal Reserve Bank of Minneapolis and a professor at Arizona State University. Goldman Sachs Group Inc.(GS) is the top seller of Build America Bonds, with $9.79 billion in sales, according to research firm Thomson Reuters, followed closely by J.P. Morgan Chase & Co.(JPM), Citigroup Inc., Barclays PLC, Bank of America 's Bank of America Merrill Lynch and Morgan Stanley. On average, the underwriting fees for Build America Bonds are $8.20 per $1,000, according to Thomson Reuters. By comparison, the standard fee for tax-exempt issues is $5 to $6 per $1,000, according to Wall Street banks. For Wall Street, Build America Bonds are a fast-growing and significant business. Since the program began in April 2009, $78 billion worth of these bonds have been sold, according to Thomson Reuters. By the end of this year, bankers estimate that as much as $150 billion more of the bonds will be sold—more than one-third of the municipal bond market. Sales could increase in the wake of the jobs bill passed by the Senate last week and under consideration now by the House. Sen. Grassley began grilling Goldman last week about its profits from Build America Bonds after the financial giant—a lightning rod for criticism of Wall Street excess—ran an ad promoting the bonds in Politico, a political news outlet. "Build America Bonds are funding vital infrastructure projects from California to New York," the ad said. "Goldman Sachs is proud to play a role in rebuilding our nation's infrastructure—and in bringing much-needed jobs to our communities."
  • Levin Would Back Capital-Gains Tax Cut for Small Businesses. Rep. Sander Levin, the new chairman of the House Ways and Means Committee, said he favored giving small businesses a new capital-gains tax break to help spur job creation. The Michigan Democrat, in an interview with The Wall Street Journal, also proposed to restore the estate tax with a more generous exemption than would otherwise prevail next year. He wouldn't commit to any timetable for action on proposed U.S. trade deals with Colombia and South Korea, saying "there's work to be done" before the pacts can be put to a vote.
  • Toyota's Recall Costs Could Top $5 Billion. The financial impact on Toyota Motor Corp. from its global recall could total more than $5 billion over the next year, due to increased incentive campaigns, litigation costs and marketing efforts by the embattled car maker, analysts say.
  • Apollo Signs Citigroup Deal. Apollo Global Management LP has signed an agreement to buy Citigroup Inc.'s(C) real-estate investment business, according to two people familiar with the matter. Final negotiations are still taking place, but the deal could close in the next few months, the people said.
  • U.N. to Announce Review of Climate Panel. Top United Nations officials plan to announce Wednesday that the InterAcademy Council, an organization representing scientists from around the world, will head up a review of the Intergovernmental Panel on Climate Change, a person familiar with the matter said. Ban Ki-moon, the U.N. secretary general, and Rajendra Pachauri, the chairman of the IPCC, are set to make the announcement in New York, the person familiar with the matter said. The announcement of more details of how the review will be conducted comes roughly a week after the panel said it would seek independent experts to investigate how factual errors were published in the IPCC's latest report, issued in 2007, and how the panel can prevent such mistakes in the future.The panel's leaders have said such a probe is necessary to ensure the IPCC's procedures are rigorous and are followed by the scientists who produce its influential reports—and, more immediately, to restore the IPCC's reputation amid a recent string of criticism. The InterAcademy Council, based in Amsterdam, is a global society of scientific academies. It exists largely to provide scientific advice to international institutions such as the U.N. and the World Bank. Its board includes the heads of scientific academies from more than a dozen countries, including the U.S.
  • China Banks Lent $102.6 Billion in February. Chinese banks made loans for about 700 billion yuan ($102.6 billion) in February, around half the 1.39 trillion yuan worth of loans issued in January, according to a report Wednesday.
NY Times:
  • Gone, Solid Gone by Roger Cohen. The Obama presidency has been a shock to Europe. At heart, Obama is not a Westerner, not an Atlanticist. He grew up partly in Indonesia and partly in Hawaii, which is about as far from the East Coast as you can get in the United States. “He’s very much a member of the post-Western world,” said Constanze Stelzenmüller of the German Marshall Fund. The great struggles of the Cold War, which bound Europe and the United States, did not mark Obama, whose intellect and priorities were shaped by globalization, and whose feelings are tied more to the Pacific and to Africa. He can make a respectable speech on a Normandy beach, but he’s probably the first U.S. president for whom the Allied landing is emotionally remote. These truths have taken a while to sink in because Europe, in its widespread contempt for President George W. Bush, saw in Obama a savior who would restore trans-Atlantic ties. One by one European leaders have been disappointed by the president’s cool remoteness. A jilted feeling has spread. In fact, Obama is a pure pragmatist. He wants Europe’s help, particularly in Afghanistan, but he has no misty-eyed vision of Atlanticism and sees more pressing strategic priorities in China, India, the Middle East and Russia. He is transitioning the United States to the post-Western world, which is another way of saying he is adapting America to a world in which its relative power is eroding. It remains to be seen how Americans will respond to the sobriety of a foreign policy that is short on stirring exceptionalist narrative and long on realism. Europeans, meanwhile, are wondering what hit them.
Business Insider:
  • Oil King Warns of 'Green Bubble'. Touting $90 billion expansion plan, Saudi Aramco chief says no matter how fast alternatives are ramped up, world will depend on oil for decades to come.
LA Times:
  • Department of Education Targets L.A. Unified for Investigation. The federal government has targeted the Los Angeles Unified School District for its first major investigation under a reinvigorated Office for Civil Rights, The Times has learned. The probe will focus on services to students learning English, who make up a third of the enrollment in the nation's second-largest school system. Federal analysts will review how English learners are identified and when they are judged fluent enough to handle regular course work. They'll examine whether English learners have qualified, appropriately trained teachers. And they'll look at how teachers make math and science understandable for students with limited-English skills -- and how a school provides extra help for those struggling the most. Reviewers also will see if the district communicates effectively with parents in a language they understand. The inquiry was prompted primarily by the low academic achievement of English learners; about 3 in 100 are proficient in math and English at the high school level, federal officials said. Focusing on L.A. Unified also makes sense because it has so many English learners, they said.
Rasmussen Reports:
  • 60% Say Their Kids' Textbooks Place Political Correctness Above Accuracy. Sixty percent (60%) of Americans with children in elementary or secondary school say most school textbooks are more concerned with presenting information in a politically correct manner than in accuracy. A new Rasmussen Reports national telephone survey finds that 28% of adults with children in the schools disagree and think most textbooks are more concerned with accurately providing information.
  • New 'Gang' Gathering on Energy? The Obama administration signaled a fresh commitment to moving a climate bill this year, bringing together a bipartisan group of 14 key Senators and top cabinet officials for a White House meeting on Tuesday afternoon. “He wants us to move, figure out where we can come together and do as comprehensive bill as we can,” said Sen. Sherrod Brown (D-Ohio). In opening remarks, according to Senators in attendance, President Obama took the idea of an energy-only bill – the preferred approach of moderate Democrats – off the table, saying he wanted a “comprehensive” bill that includes a cap on greenhouse gas emissions. “He wants to do it this year, that’s for sure,” said Sen. Joe Lieberman (I-Conn.)
  • UPDATE: Lincoln just released a statement reaffirming her opposition to reconciliation. “Sen. Olympia Snowe and I have proposed a bipartisan way forward on health care and I still hope that my colleagues will consider it,” Lincoln said. “I have promised my constituents that I will not support income tax increases to pay for health care and I will seek bipartisan solutions. This takes budget reconciliation as an alternative means to pass health care reform off the table for me. I have fought for and ensured transparency throughout this process, and I believe we must get over this final hurdle using the regular rules of the Senate." The statement claims her words were mischaracterized. However, for reporters who watch the words of lawmakers closely, Lincoln's suggestion that she wanted to see the bill before stating her opposition to reconciliation was different than her prior pronouncements on the issue. But Lincoln said her position was unchanged. "I don't support reconciliation," she told reporters this afternoon. "All I said was I want to see what's in it."
  • Chuck Schumer Explores Filibuster Buster. With Democrats lacking a filibuster-proof majority, Sen. Chuck Schumer plans to begin holding hearings to reform the potent stalling tactic, an issue that has picked up steam among liberal and junior Democratic senators. The hard-charging New Yorker, who chairs the Rules and Administration Committee, plans to move forward with a hearing on March 24 after discussing the issue with Sens. Tom Udall (D-N.M.) and Carl Levin (D-Mich.), two men who have grown concerned with the increased use of filibuster threats to derail legislative business, an aide said Tuesday.
  • Exclusive: Dendreon(DNDN) Stock Mauling Probed by Regulators. A lightening fast sell-off of shares of biotech company Dendreon(DNDN) last April is drawing scrutiny from U.S. securities regulators and the independent monitor assigned to keep tabs on those regulators, said people familiar with the matter. It is not clear if the SEC inquiry into the incident, which some academics and investors have blamed on a combination of short-sellers and high-frequency trading programs, will lead to an enforcement action, said these same sources. It is unusual for the SEC's inspector general to conduct an inquiry into the agency's handling of an ongoing investigation. Kotz's office initiated the investigation at the request of an investor and Sen. Charles Grassley, according to sources and the inspector general's semiannual report. The Iowa Republican has had a history of taking issue with the pace of SEC investigations and asking Kotz's office to review the agency's handling of enforcement matters.
  • U.S. Weighs Aiding Airlines with Air Traffic Upgrades. The Obama administration is weighing help for U.S. airlines to meet the costs of modernizing the air traffic control system, Transportation Secretary Ray LaHood said on Tuesday. Airlines are pressuring the government not to saddle them with the bulk of expenses for the planned multibillion-dollar upgrade of the air traffic system to one relying on satellites rather than ground-based radar. LaHood told the annual Federal Aviation Administration industry forecast conference that the White House was looking into the matter and should have something to say to them soon.
Financial Times:
  • Germany's Eurozone Crisis Nightmare. Ever since the federal republic was founded, Germany has had two over-riding strategic objectives: sound money and European integration. These were the twin imperatives learned from the calamities of the early 20th century. The euro embodies these aims. Now they conflict with each other.
  • China's US Holdings 'Normal'.
  • Investors Warn EU on Private Equity Rules. Europe risks building a protectionist wall between itself and the global private equity industry if plans for a sweeping overhaul of regulation in the sector go ahead, some of the world’s biggest institutional investors have warned. The warning from the International Limited Partners Association, representing 220 of the biggest pension funds, endowments and sovereign wealth funds, comes at a sensitive time with European Union lawmakers and member states close to agreeing new rules. Investors based in the EU could be barred from investing in private equity funds based outside the 27-country bloc, said the ILPA, whose members have more than $1,000bn (£667bn) invested in private equity worldwide. In addition, the proposed regulation could “severely disturb” many of the world’s biggest private equity groups by depriving them of access to EU investors, while in turn reducing foreign investment into EU companies. “Not only will EU investors have reduced access to non-EU private equity managers, there exists a real concern that the proposal will effectively close Europe off from the capital solutions . . . that comprise the global private equity industry,” it said.
  • Regulators Tell US Banks to Hold Funds. US regulators have told banks not to increase dividends or buy back shares until political and economic uncertainty surrounding the industry dissipates, in a move that will delay by months the return of capital to shareholders. Some investors in financial stocks argue that winners of the credit crisis, such as JPMorgan Chase(JPM) and Goldman Sachs(GS), have profitable businesses and strong balance sheets and should consider raising dividends or buying back stocks. Executives at the two companies have talked in public and with regulators about the possibility of returning cash to investors after taking action to conserve resources during the turmoil. But they say they are not in a rush to go ahead, especially if their watchdogs oppose such moves.


  • Britain Made String of Protests to US Over Falklands Row. British diplomats have expressed serious concerns to the US State Department at least three times over Washington’s response to the latest dispute over the Falkland Islands, The Times has learnt. In telephone calls and meetings, senior diplomats and specialists were forced to restate Britain’s position on sovereignty over the islands and seek clarification of the US position after a State Department spokesman in February answered a question about the Falklands by saying: “Or the Malvinas, depending on how you see it.” British anger over the Obama Administration’s apparent indifference to the issue mounted when Hillary Clinton endorsed President Fernández de Kirchner’s call for talks on sovereignty while she was in Buenos Aires last week, State Department sources said. The new details of British complaints emerged as influential conservatives in Washington described the Administration’s handling of the dispute as offensive, ignorant and a reflection of a lack of enthusiasm for the idea of a special relationship between the two countries.
  • Don't Turn Air Race into Trade War, Mandelson Tells Obama. Lord Mandelson has tried to head off a transatlantic trade war by expressing concern at Washington’s handling of a $35 billion Pentagon procurement project that could spark European retaliation. At the centre of the row are allegations made by EADS that the Pentagon has skewed the terms of a competitive tender to favour Boeing(BA). EADS, the owner of Airbus, and its American partner Northrop Grumman(NOC) said on Monday night that they were pulling out of the race to build air refuelling tankers for the US Air Force. It is understood that the Business Secretary has written to the White House to articulate his concerns. Whitehall insiders told The Times last night that the handling of the tanker contract had sent the wrong signal.
Financial News:
  • People's Bank of China Assistant Governor Guo Qingping said implementing a moderately loose monetary policy this year will face more difficulties than in 2009. One difficulty will be shifting the pace of loan growth to those of normal conditions from "extraordinary" conditions of the global financial crisis, published by the Chinese central bank. It will also be difficult for China to coordinate the need to create jobs, spur economic growth, control inflation and balance international payments.
Evening Recommendations
  • Reiterated Buy on (AEO), target $19.
  • Reiterated Buy on (PCLN), target $275.
  • Upgraded (MAT) to Buy, target $27.
  • Reiterated Buy on (ADBE), boosted target to $42.
Night Trading
  • Asian indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 99.0 +2.0 basis points.
  • S&P 500 futures -.01%
  • NASDAQ 100 futures +.05%
Morning Preview
Earnings of Note
  • (PLCE)/1.03
  • (MTN)/1.12
  • (BF/B)/.70
  • (AEO)/.33
  • (JAS)/1.33
  • (MW)/-.14
  • (GYMB)/1.10
Economic Releases
10:00 am EST
  • Wholesale Inventories for January are estimated to rise +.2% versus a -.8% decline in December.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +4,034,000 barrel gain the prior week. Distillate inventories are expected to fall by -1,000,000 barrels versus a -843,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +.7% gain the prior week.
2:00 pm EST
  • The Monthly Budget Deficit for February is estimated to widen to -$222.0B versus -$193.9B in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Treasury's $21B 10-Year Note Auction, Bloomberg Global Confidence Report, BofA/Merrill Consumer Conference, Citi Financial Services Conference, (DIS) annual meeting, weekly MBA mortgage applications report, (JAH) analyst meeting, (PL) investor conference, Raymond James Institutional Investors Conference, JPMorgan Aviation/Transportation and Defense Conference, Jefferies Tech Conference, CSFB Media/Communications Conference, CSFB Communications Equipment/Networking Conference and the Cowen Healthcare Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and telecom stocks 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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