Wednesday, October 20, 2010

Weekday Watch

Posted by Gary .....at 12:09 AM

Evening Headlines
Bloomberg:
  • Helicopters Dump Water on Japan Nuclear Plant Fuel Rods. Helicopters are dumping water on a reactor at the crippled Fukushima Dai-Ichi power station, aiming to cool exposed fuel that may be spewing radiation, while the Tokyo Electric Power Co. may connect a power line to start damaged cooling systems later today, officials said. Japan’s Nuclear and Industrial Safety Agency said today there is a possibility of no water at the No. 4 reactor spent fuel cooling pool. The agency has detected no smoke or steam rising from the reactor, spokesman Hidehiko Nishiyama told reporters in Tokyo. All water in the No. 4 reactor’s spent-fuel pond has drained, U.S. Nuclear Regulatory Commission Chairman Gregory Jaczko told a congressional panel in Washington yesterday. Fuel rods stored in three reactors at the Tokyo Electric plant are exposed and releasing radiation, Yukiya Amano, head of the International Atomic Energy Agency, said in Vienna before departing for Tokyo.
  • NRC Chief Warns of Risks as Japanese Flee Tsunami Region. Japan’s crippled nuclear power plant is releasing “extremely high” levels of radiation that could be life-threatening, the head of the U.S. Nuclear Regulatory Commission told lawmakers as hundreds of Japanese fled south of areas hit by last week’s earthquake and tsunami. All the water in one of the Fukushima Dai-Ichi power plant’s spent-fuel cooling pools has drained, NRC Chairman Gregory Jaczko told a House Energy and Commerce Committee panel in Washington. “Radiation levels are extremely high, which could possibly impact the ability to take corrective measures,” he said. Japanese officials denied that the water from the cooling pools was gone, the Associated Press reported.
  • Japan May Face 'Irreversible' Damage to Its Power Capacity, Citigroup Says. Japan may face “irreversible” damage to power supply capacity from the March 11 earthquake and tsunami, Citigroup Inc. said in a note. “Particularly worrying is the serious blow to the power supply in eastern Japan,” according to the note, dated yesterday. “It is difficult to tell how long this will remain a drag on corporate activity.” In areas supplied by Tokyo Electric Power Co., power supply may be reduced by 54 percent under a worst-case scenario, Citigroup said.
  • U.K. Urges Citizens to Consider Leaving Tokyo as Foreign Pessimism Climbs. The U.K. advised its nationals to consider leaving Tokyo as foreign governments took a more pessimistic view on Japan’s battle to contain damage to nuclear reactors at the Fukushima power station north of the capital. The U.S., U.K. and Australia all extended their suggested evacuation zone around the plant, marking a break with the official Japanese position.
  • Contracts insuring Tokyo Electric Power Co.'s debt against default rose 45 basis points to 365 basis points as of 9:58 a.m. in Tokyo, according to Royal Bank of Scotland Group Plc prices.
  • The cost of insuring Japanese sovereign debt with credit-default swaps jumped to a record after a U.S. official said a crippled nuclear plant at Fukushima is releasing "extremely high" levels of radiation. Five-year swaps on Japan soared 22.5 basis points to 130 basis points as of 8:58 a.m., according to Citigroup Inc. The Markit iTraxx Japan index of corporate borrowers climbed 29 basis points to 169 as of 9:07 a.m. in Tokyo, heading for the highest reading since May 25, according to Citigroup and CMA in NY.
  • Qaddafi Bombs Benghazi as Son Says 'Too Late' for No-Fly Zone Over Libya. Libyan leader Muammar Qaddafi brought the war for the first time to the rebel capital, with three of his warplanes bombing Benghazi airport before being chased off by anti-aircraft fire. Qaddafi’s son, Saif al-Islam, scoffed at today’s UN Security Council discussions about authorizing a no-fly zone. “It’s too late,” he said in an interview with EuroNews television, according to a transcript on its website. “In 48 hours, we will have finished our military operation. We are at the gates of Benghazi.”
  • Spain's Bond Sale to Test Investor Confidence in Rescue Fund: Euro Credit. Spain is selling bonds today in the first test of whether Europe’s efforts to boost the firepower of its rescue fund are persuading investors to become more discriminating about which countries will avoid bailouts. Spain sells as much as 4.5 billion euros ($6.3 billion) of 30-year debt and 10-year securities, the first bond auction since European Union leaders agreed March 12 to increase the lending capacity of the region’s bailout fund. The nation’s 10- year bonds Bonds rallied to their highest in more than a month, widening the gap in yields with Portugal, Spain’s neighbor on the periphery. “Now we know that this is adequate, that there is a backstop for Spain if needed,” said Ioannis Sokos, a fixed- income strategist at BNP Paribas SA in London, who predicts a strong auction today. “I expect a decrease in the contagion effect from small peripheries to Spain and Italy.”
  • Republican Senators Demand Obama Take Lead on Entitlement Cuts. Almost two-dozen Republican senators are threatening to oppose increasing the U.S. debt limit unless President Barack Obama leads efforts to begin cutting government entitlement programs such as Medicare and Social Security. The 22 lawmakers, in a letter today to Obama, demanded he work out an agreement similar to the 1983 deal between President Ronald Reagan and then-House Speaker Tip O’Neill, a Massachusetts Democrat, that shored up the Social Security trust fund. “A similar show of leadership from you and from congressional leaders of both parties is necessary to address the long-term fiscal challenges facing our country,” the letter said. “Without action to begin addressing the deficit, it will be difficult, if not impossible, for us to support a further increase in the debt ceiling.” The government will reach the legal limit on borrowing sometime between April 15 and May 31, according to the Treasury Department.
  • The U.S. Commodity Futures Trading Commission should use authority under the Dodd Frank Act to require higher margin payments in futures contracts to deter speculation in oil markets, 13 U.S. senators said. "Speculators are seizing on recent political turmoil in North Africa and the Middle East to drive energy prices to unwarranted levels," the senators said in a letter today to CFTC Chairman Gary Gensler. "Higher margin levels would reduce incentives for excessive speculation by requiring investors to back their bets with real capital."
  • Japan Disaster Looms Over Global Economy: Mohamed El-Erian. Once rescue operations are complete, Japan will indeed embark on a massive reconstruction program that, I believe, will be successful. Yet there are three reasons why it’s way too early to conclude that the aftermath of these events will have only a transitory impact on the global economy. First, consider the nature of this terrible shock. In addition to the large wealth destruction and the worrisome health risks of released radioactive material, the spiraling crisis at the Fukushima nuclear reactors raises difficult questions about how and when electricity will be fully restored throughout the country. It will also fuel a global debate about the future of nuclear power, an important source of energy. Second, think about the funding of Japan’s reconstruction program. The mix, particularly involving debt financing and the repatriation of Japanese savings invested outside the country, will matter quite a bit in terms of the impact on different asset classes. As the Federal Reserve knows well, changes in asset valuations can influence consumer behavior and market volatility. Third, the Japanese disasters are not happening in isolation. They add to the supply shock that the global economy already faces due to the uprisings in the Middle East and the related increase in oil prices. As such, the risk of a global macro tipping point cannot, and should not, be ignored.
Wall Street Journal:
  • U.S. Sounds Alarm on Radiation. Fear about radiation dangers posed by Japan's nuclear crisis spiked as the U.S. instructed its troops and citizens to stay at least 50 miles away from the crippled reactors—establishing a "no-go" zone far wider than the buffer recommended by the Japanese government itself.
  • Radiation Spurs Fears Around Japanese Food. The spiking radiation in Japan is spurring fears about food safety and prompting other countries to test Japanese imports, but any contamination would have the biggest impact on the Japanese, since most fruit, vegetable, meat and seafood are consumed domestically, say experts.
  • Japanese Update in Real-Time.
  • FDIC's Tab for Failed U.S. Banks Nears $9 Billion.
  • The Anemic Recovery Continues by Mortimer Zuckerman. Who can blame consumers for holding back when 50 million Americans depend on taxpayer-supported programs? The modern-day soup line is a check in the mail.
  • Retailers Push Amazon.com(AMZN) on Taxes. Wal-Mart, Target and Others Look to Close Loophole for Online Sellers Amid State-Budget Crises.
  • Upheaval in Mideast Sets Back Terror War. The U.S. has lost track of many former Guantanamo detainees who had been sent home to the Middle East and North Africa, a sign that unrest in the region is disrupting critical terror-fighting relationships America has built up since the Sept. 11 attacks, U.S. officials say. The flow of information from Libya, Yemen and other governments in the region about the whereabouts and activities of the former Guantanamo detainees, along with other Islamists released from local prisons, has slowed or even stopped, the officials say. U.S. officials say they fear that former detainees will re-join al Qaeda and other Islamist groups.
Bloomberg Businessweek:
  • Hartford(HIG) Falters as 'Upside' Japan Bet Sours After Quake. Hartford Financial Services Group Inc. is one of the worst-performing U.S. insurance stocks since the Japan earthquake as the firm’s bullish bets in the nation may hurt results more than a year after it halted sales there. Chief Executive Officer Liam McGee, faced with underwater investments supporting guarantees to customers in Japan, created a hedging strategy to “retain some of the economic upside from a market recovery” in the country, he told investors in February. Hartford is the biggest decliner in the 24-company KBW Insurance Index since the March 11 disaster, falling 9.8 percent.
CNBC:
  • Public Pension Plans Keep Betting on Hedge Funds. More public pension plans are investing in hedge funds than ever before. What's more, they are putting a great portion of their assets under management into those funds, says a new study. There are now 295 public pension plans worldwide that are known to be investing in hedge funds, a 50 percent increase from 2007, according to a study just released by hedge fund data company Preqin. The percentage of assets allocated to hedge funds is also growing, from a mean of 3.6 percent in 2007 to 6.5 percent, Preqin says. That’s a full percentage point higher than the average private equity allocation for pension funds. Four-fifths of public pension funds say they made their first investment in hedge funds though funds of funds. And 70 percent of pension funds that invest in hedge funds have funds of funds in their portfolio. This piles on fees for the pension funds—they pay a fee to the fund of funds manager and then another to the underlying fund. It’s a terribly inefficient way to allocate money—except that most pension fund managers probably lack the requisite skills to go it alone. Fortunately, pension fund managers say they seek an absolute return of just 6.1 percent—lower than the average hedge fund investor, who seeks a 7 percent return, according to Preqin. Shortly after the Madoff scandal broke, there was lots of speculation that pension funds and other investors would turn against hedge funds. Apparently, that hasn’t happened.
  • Will China's Regime be the Next to Collapse? As unrest spreads throughout the Middle East, western observers like Elizabeth Economy of the Council on Foreign Relations argue China’s government might collapse. The reasoning? Unhappiness over economic disparity. They also believe the demand for materialism is being replaced by desire for political plurality.
Business Insider:
Zero Hedge:
IBD:
CNN Money:
Washington Post:
Politico:
  • Hillary Clinton Not on Board for Second Term. Hillary Clinton really, really, really doesn’t want to be president or vice president, or to become defense secretary or to continue serving as secretary of state if President Barack Obama is elected to a second term, she made clear in an interview Wednesday. Clinton told a persistent Wolf Blitzer that she has absolutely no interest in any other government job after she leaves the State Department.
USA Today:
Reuters:
  • U.S. to Deploy Ground Monitoring Equipment in Japan. The United States is trying to deploy equipment in Japan that can detect radiation exposure at the ground level, U.S. Energy Secretary Steven Chu told Congress on Wednesday. Chu declined to tell lawmakers, when asked, whether he was satisfied with Japan's response so far to its nuclear crisis. "I can't really say. I think we hear conflicting reports," Chu said.
  • Guess(GES) Profit Rises But Outlook Below Street View. Guess Inc (GES) expects weak sales at its North American stores to persist early this fiscal year amid pressure on its profits from rising cotton and oil prices, and its shares fell nearly 5 percent.
Financial Times:
  • US Banks Plead to Limit Range of Swap Rules. US banks are urging regulators writing new rules for the derivatives markets under 2010’s Dodd-Frank Act to keep their hands off the banks’ swaps businesses in London and other overseas financial centres. The lobbying efforts highlight the fact that regulations are being written at different speeds in different countries, allowing for “regulatory arbitrage”, which officials have sought to stamp out. The US government had to bail out insurer AIG because of soured swap trades by a London-based division.
Telegraph:
City A.M.:
  • Losses Worsen at RAB Capital Hedge Funds. STRUGGLING hedge fund manager RAB Capital’s losses deepened yesterday, after it reported a pre-tax loss of £20.2m and a 15 per cent fall in revenues last year. Assets under management tumbled 21 per cent to $1.06bn (£662m) last year as a mixture of underperforming funds and fleeing investors hit the company, which issued a profit warning in September. The firm said $124m of this fall was due to funds being closed or sold on, while $53m was repaid to exiting investors.
Sueddeutsche Zeitung:
  • The global economy could be hurt by the Japan earthquake and tsunami, as it may lead to a decrease in production in Asia and elsewhere, citing the Kiel Institute for the World Economy. There may be a "domino effect" that has an impact on all of Asia, and carmakers and computer companies around the world could be forced to slow production, citing Dennis Snower, head of the Kiel Institute.
Nikkei:
  • The heads of more than 10 foreign financial companies in Japan held a conference call on March 15 to discuss whether the Tokyo Stock Exchange should close.
NHK:
  • Live Japanese news broadcast in English.
  • Japanese police plan to start pumping water on the damaged No. 4 reactor at Tokyo Electric Power Co.'s Fukushima Dai-Ichi nuclear plant as early as this morning, local time
Australian Financial Review:
  • Australia may team with the European Union to put pressure on China at the next G20 summit in relation to exports of rare earths.
Xinhua:
  • Chinese are buying up iodine tablets as a protection against radiation that they fear might spread from Japan's earthquake-hit nuclear reactor, citing pharmacies and residents.
People's Daily:
  • China's labor costs may keep rising in the long term, Ma jiantang, head of the National Bureau of Statistics, wrote in a commentary.
Evening Recommendations
CSFB:
  • Rated (HPQ) Outperform, target $60.
  • Rated (EMC) Outperform, target $34.
  • Rated (AAPL) Outperform, target $500.
  • Rated (LXK) Underperform, target $35.
  • Rated (DELL) Underperform, target $16.
Night Trading
  • Asian equity indices are -1.75% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 118.0 +5.5 basis points.
  • Asia Pacific Sovereign CDS Index 121.75 -2.5 basis points.
  • S&P 500 futures +.44%.
  • NASDAQ 100 futures +.25%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (FDX)/.81
  • (ROST)/1.37
  • (NKE)/1.12
  • (CPWM)/1.24
  • (ATU)/.30
Economic Releases
8:30 am EST
  • The Consumer Price Index for February is estimated to rise +.4% versus a +.4% gain in January.
  • The CPI Ex Food & Energy for February is estimated to rise +.1% versus a +.2% gain in January.
  • Initial Jobless Claims for last week are estimated to fall to 388K versus 397K the prior week.
  • Continuing Claims are estimated to fall to 3750K versus 3771K prior.
9:15 am EST
  • Industrial Production for February is estimated to rise +.6% versus a -.1% decline in January.
  • Capacity Utilization for February is estimated to rise to 76.5% versus 76.1% in January.
10:00 am EST
  • Leading Indicators for February are estimated to rise +.9% versus a +.1% gain in January.
  • Philly Fed for March is estimated to fall to 28.8 versus a reading of 35.9 in February.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Treasury's Geithner speaking, weekly EIA natural gas inventory report, CSFB Aerospeace/Defense Conference, (MDU) analyst seminar and the (MMM) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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