Wednesday, March 24, 2010

Wednesday Watch

Evening Headlines

  • Euro Falls to 3-Week Low Against Dollar on Greece Uncertainty. The euro fell to a three-week low against the dollar after French and German leaders said any aid package for Greece would require help from the International Monetary Fund, damping demand for the common currency. “It looks like the eurozone can’t resolve the Greek crisis by themselves so they are going to the IMF for help,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. “This casts some doubt over the strength of the European Union. The bias is to sell the euro.” “Given strong opposition for any aid among German citizens, key EU members are unlikely to extend support for Greece,” said Hirokata Kusaba, a senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second- largest banking group. “The euro will continue to weaken.”
  • AK Steel(AKS) Sees $31 Million Charge From New Health Law. AK Steel Holding Corp., the third largest U.S. steelmaker by sales, said it will record a non-cash charge of about $31 million resulting from the health-care overhaul signed into law by President Barack Obama. The charge, to be recorded in the first quarter of 2010, is due to a reduction in the value of the company’s deferred tax asset because of a change to the treatment of Medicare Part D reimbursements under the new law, West Chester, Ohio-based AK Steel said in a statement today. The almost $1 trillion overhaul signed today, called the Patient Protection and Affordable Care Act, was opposed by some U.S. businesses that said the measure would raise their costs. Caterpillar Inc., the world’s largest maker of construction equipment, last week said taxes and “new-coverage mandates” would raise its health-care costs by 20 percent, or more than $100 million in the first year. AK Steel and other companies that had been receiving a federal subsidy for offering retiree drug benefits are going to have that payment taxed under the new law, Alan McCoy, a spokesman for AK Steel, said in an interview today. In the past, the businesses received the money from the government tax-free because they were saving Medicare money and covering the part of prescription drug costs that the federal insurance plan for the elderly wasn’t. Erin DiPietro, a spokeswoman for Pittsburgh-based U.S. Steel(X), said information was not immediately available on how the new health law would affect the company financially.
  • Wall Street Despised in Poll Showing Majority Want Regulation. Americans are leery about creating a new federal agency to make consumer-protection rules for mortgages and credit cards and would prefer to enhance the existing powers of banking regulators. Most people interviewed in the Bloomberg National Poll say they don’t like Wall Street, banks or insurance companies and favor letting the government punish bankers who helped cause the worst financial crisis since the Great Depression. Almost seven out of 10 people surveyed support using current bank regulators for consumer protection, backing positions held by the financial industry and Republicans over President Barack Obama’s proposal to establish an independent agency. “People are generally satisfied with the way consumer protection has worked with banks,” said Ernie Patrikis, a partner specializing in banking supervision at the White & Case LLP law firm in New York. “Most Americans could care less about redoing the financial regulatory structure.” 57 percent of Americans have a mostly unfavorable or very unfavorable view of Wall Street, versus fewer than one-quarter who have a favorable opinion. Banks are viewed badly by 54 percent of poll respondents, and 60 percent have a negative opinion of insurance companies. The poll also shows most Americans don’t like the nation’s top corporate bosses. Almost two-thirds say they have an unfavorable opinion of business executives, a rating that rivals the public’s disdain for Congress, which was viewed with disfavor by 67 percent of respondents. Fifty-six percent of those polled say they would support government action to limit compensation of those who helped cause the financial crisis, or to ban those people from working in the banking industry. As Democrats and Republicans seek to tap populist ire, the poll shows there may be political advantage in taking on big financial institutions such as Charlotte, North Carolina-based Bank of America Corp., and New York’s Goldman Sachs Group Inc. The majority of poll participants -- 56 percent -- say big financial companies are more interested in enriching themselves at the expense of ordinary people, while 40 percent say such firms play a vital role in enabling the economy to grow. More than 40 percent of Americans say the government has gone too far in measures to fix the financial industry; 37 percent say it hasn’t done enough. Almost six out of 10 people say Wall Street hasn’t gone far enough on its own to protect against future emergencies. “Anything the government gets their fingers in, they mess it up,” said poll participant Norman White, 60, a community college electronics instructor who lives in Colfax, Louisiana. “I don’t have a very high opinion of the government running anything.”
  • White House Inflates Success of Loan Program, Watchdog Says. The Obama administration is inflating the success of its main foreclosure prevention program, which may end up doing more harm than good by “spreading out the foreclosure crisis” over several years, according to federal investigators. “A year into the program, although more than a million trial modifications have been initiated, the number of permanent modifications thus far, 168,708, has been, even according to Treasury, ‘disappointing,’” according to a report by a government watchdog obtained by Bloomberg News. “The program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway.” While Treasury officials still publicly proclaim the Home Affordable Modification Program, or HAMP, will help 3 million to 4 million borrowers, internally they project that about half that number will receive permanent alterations to their loan terms, the Special Inspector General for the Troubled Asset Relief Program wrote in the report. The findings are scheduled to be released at a hearing before the U.S. House Committee on Oversight and Government Reform March 25. The report echoes criticisms in a March 16 letter to Treasury Secretary Timothy Geithner from Republican committee members Darrell Issa of California and Jim Jordan of Ohio. They said the administration was “glossing over disappointing results” by counting temporary changes toward the goal of permanent relief.
  • Investors are withdrawing from money-market funds at the fastest pace in at least two decades, reducing holding that peaked at $3.9 trillion in January 2009. "The draining of cash from money-market funds shows people are becoming more comfortable taking risk, so equities are going up and bonds are also being well supported and the yield curve is flattening," said Christian Carrillo, a senior interest-rate strategist in Tokyo at Societe Generale SA. "Such behavior can give some comfort to the Fed that it's okay to reduce the size of its balance sheet, which is a pre-requisite for rate hikes."
  • CFTC Needs to Expand Metal Rules, Commissioner Says. The U.S. Commodity Futures Trading Commission needs “professional-grade” regulations for metal markets including gold and silver, according to Commissioner Bart Chilton. “We need to have rational free markets and need to control and ensure that there’s no excess speculation and no excess concentration in markets,” Chilton said today on a conference call with investors that was monitored by reporters. “We need to have professional-grade regulatory tools” for metal-futures trading, he said. The agency, which oversees $5 trillion in daily trading, will hold a public meeting on March 25 to consider limits on trading positions in metals as part of a plan to prevent anyone or any firm from gaining too much control of a commodity market. The commission “drastically” needs the limits to keep speculators from “contorting” markets, Chilton said.
  • AIG(AIG) Increases Compensation for Most Top Managers. American International Group Inc., the bailed-out insurer, was allowed by U.S. paymaster Kenneth Feinberg to increase 2010 compensation for most top executives in a group that had their pay slashed last year.
  • NFL Owners Change Overtime Rule During Playoffs.
  • Corzine Returns to Wall Street as CEO of MF Global(MF). Former New Jersey Governor Jon Corzine, who ran Goldman Sachs Group Inc. from 1994 to 1999, has accepted offers to lead the futures and options broker MF Global Holdings Ltd. and become an operating partner of buyout firm J.C. Flowers & Co. Corzine, 63, becomes chairman and chief executive officer immediately, MF Global said in a statement today. He takes over from Bernard W. Dan, 50, who is leaving for personal reasons and will stay until May 16 to aid in Corzine’s transition, the New York-based company said. MF Global shares gained as much as 13 percent in after-market trading.
  • Netanyahu Says Housing Rift Could Delay Talks by Year. U.S. acceptance of Palestinian demands that Israel halt construction in east Jerusalem could put Middle East peace talks on hold for a year, Israeli Prime Minister Benjamin Netanyahu said. “For 42 years we have been building in the Jewish neighborhoods of Jerusalem. No one argued about it,” Netanyahu said at a meeting today with U.S. House Speaker Nancy Pelosi, according to his spokesman, Nir Hefez. “This was never raised as a point of contention between us and the U.S.,” Netanyahu said. “The Palestinians are now raising a new demand. If this demand is adopted we are liable to lose another year.”
  • Adobe(ADBE) Sales Forecast Signals Likely Software Upgrade. Adobe Systems Inc., the world’s biggest maker of graphic-design programs, forecast sales that beat analysts’ estimates, a sign the company is poised to release an upgrade of its most profitable software. The shares gained.
  • Nintendo Shares Gain on Plan for Glasses-Free 3-D DS.
Wall Street Journal:
  • Schumer Threatens Retaliation in EU Hedge-Fund Dispute. A U.S. senator threatened retaliation if European Union proposals curbing access of American fund managers to the European market become law. In a sign that a European effort to increase regulation of hedge funds and other alternative-investment vehicles could escalate into a broader trans-Atlantic dispute, Sen. Charles Schumer (D., N.Y.) described the European proposals as "protectionist rules that discriminate against U.S. firms and activities." In a letter to Treasury Secretary Timothy Geithner, Mr. Schumer said he stands ready to call on Congress to pass legislation that would prohibit funds not based in the U.S. from marketing and raising money in the U.S. It also would require funds operating in the U.S. to use custodian banks based in the U.S.
Business Insider:
Rasmussen Reports:
  • Health Bill May Exempt Top Hill Staffers. The health care reform bill signed into law by President Barack Obama Tuesday requires members of Congress and their office staffs to buy insurance through the state-run exchanges it creates – but it may exempt staffers who work for congressional committees or for party leaders in the House and Senate. Staffers and members on both sides of the aisle call it an “inequity” and an “outrage” – a loophole that exempts the staffers most involved in writing and passing the bill from one of its key requirements.
Financial Times:
  • Global Derivatives Disclosure to Rise. A transatlantic row that flared up in the wake of the Greek debt crisis over the lack of disclosure to regulators of credit market activity has pushed the new body in charge of collecting global trading data to provide more information to financial watchdogs. Regulators from around the globe including the Securities and Exchange Commission will now be able to obtain breakdowns of trading activity in credit default swaps, including the identity of the investors.
  • Deutsche Bank(DB) and Moore Capital Drawn into FSA Swoop on 'Insider Dealing'. Leading banks BNP Paribas, Deutsche Bank and top hedge fund Moore Capital are among those drawn into the investigation which reached its climax on Tuesday when 150 officers from The Financial Services Authority raided 16 addresses in and around London. Six men were arrested in the joint operation with officers from the Serious Organised Crime Agency.understands that Clive Roberts, head of European sales trading at Exane, in which BNP Paribas owns a 50pc stake, has been implicated in the investigation, along with a junior employee in Deutsche Bank's London office. In addition reports claimed that Julian Rifat, an execution trader at Moore Capital, has also been arrested after the officers raided the fund's London office. Moore Capital said that Mr Rifat is now on administrative leave.
The Guardian:
  • Google(GOOG) Co-Founder Sergey Brin Urges US to Act Over China Web Censorship. Google co-founder Sergey Brin has called on Washington to take a stand against China's censorship of the internet, urging the US to make the issue a "high priority". Brin, talking to the Guardian about Google's decision yesterday to lift censorship from its Chinese internet search engine, called on government and businesses to act in order to put pressure on Beijing.
China Daily:
  • US Likely to Label China 'Currency Manipulator'. The US Treasury Department is highly likely to label China a currency manipulator in a report due out in mid-April, but the move will be "more symbolic than substantive" to win mid-term Congressional elections in the fall, former US trade representative Susan Schwab told China Daily on Tuesday. If that were the case, it will be the first time in 16 years. By declaring China a currency manipulator, the US could slap additional tariffs on imports from the country. Some Chinese experts strongly doubt the US will do so as it will provoke Beijing and jeopardize its most important trade relationship, while others believe that even if China were declared a currency manipulator, Washington will not follow up with punitive measures. "There is a high possibility, definitely (that China will be labeled as a manipulator), but it is very important to remember the decision is largely symbolic and does not force any actions, other than consultations," she said. Schwab said "a significant growing number" of Democrats are increasingly pushing protectionist solutions, which she said was unfortunate."This is a very difficult decision (for the US government) to make. It is under a lot of pressure on the high unemployment rate and the coming election this fall." As the mid-term election campaign looms, the Obama administration could "easily make China a scapegoat by blaming the country for their own problems," Huo said.
China Securities:
  • The yuan may strengthen by between 3% and 5% this year against the U.S. dollar, starting in April, citing a forecast by China International Capital Corp. The Chinese currency may strengthen "gradually," instead of through a one-step revaluation, citing the forecast by the Beijing-based investment bank.
Evening Recommendations
  • Reiterated Buy on (ADBE), target $42.
  • Reiterated Buy on (PLCE), target $50.
  • Reiterated Buy on (URBN), target $42.
  • Reiterated Buy on (CCL), raised estimates, boosted target to $47.
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 98.0 - 5.0 basis points.
  • S&P 500 futures -.12%
  • NASDAQ 100 futures -.10%
Morning Preview Links

Earnings of Note
  • (LEN)/-.34
  • (GIS)/.93
  • (PAYX)/.33
  • (CMC)/.91
  • (RHT)/.16
Economic Releases
8:30 AM EST
  • Durable Goods Orders for February are estimated to rise +.6% versus a +3.0% gain in January.
  • Durables Ex Transports for February are estimated to rise +.6% versus a -.6% decline in January.
10:00 AM EST
  • New Home Sales for February are estimated to rise to 315K versus 309K in January.
10:30 AM EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,650,000 barrels versus a +1,012,000 barrel gain the prior week. Gasoline inventories are expected to fall by -1,500,000 barrels versus a -1,710,000 barrel decline the prior week. Distillate supplies are estimated to fall by -985,000 barrels versus a -1,491,000 barrel decline the prior week. Finally, Refinery Utilization is expected unch. versus an -.18% decline the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Treasury's $42B 5-Year Note Auction, Treasury's Wolin speaking, Fed's Hoenig speaking, Fed's Kohn speaking, weekly MBA mortgage applications report, BB&T Commercial & Industrial Conference, Barclays Healthcare Conference, (COP) analyst meeting and the (SBUX) shareholder meeting could also impact trading today.
BOTTOM LINE: Asian indices are 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 mixed. The Portfolio is 100% net long heading into the day.

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