Thursday, December 16, 2010

Friday Watch


Evening Headlines

Bloomberg:

  • EU Agrees to Create Post-2013 Crisis Tool as Bloc Spars Over Current Steps. European Union leaders agreed to amend the bloc’s treaties to create a permanent crisis- management mechanism in 2013, while divisions flared over steps to prevent concern over debts from engulfing Portugal and Spain. Germany, the biggest contributor to Europe’s bailouts of Greece and Ireland, pushed through an accord to set up a system that would allow financial aid “if indispensable” to underpin the euro and might force bondholders to bear some of the costs of future rescues. “Our task now is to hold the course, walk not talk, and prove those wrong who predicted the demise of our common currency,” European Commission President Jose Barroso told reporters after the first session of an EU summit in Brussels late yesterday. The summit is slated to end around 1 p.m. today.
  • Portugal May Get Frozen Out by Bond-Sale 'Avalanche' in 2011: Euro Credit. Portugal risks being frozen out of the bond markets next year amid a wave of auctions from higher- rated governments and agencies that threaten to force the nation into seeking a bailout to pay its debts. “It has become the market consensus that Portugal’s ability to fund on a standalone basis is fairly constrained,” said Jamie Stuttard, head of European and U.K. fixed income at London-based Schroders Plc, which has $286 billion under management. “People have investment alternatives.”
  • Democrats Pull 'Omnibus' Budget Bill Amid Republican Opposition. The Senate’s top Democrat said he won’t try to pass a $1.2 trillion “omnibus” spending bill for the government loaded with thousands of lawmakers’ pet projects because Republicans withdrew their support for the measure. Senate Majority Leader Harry Reid, a Nevada Democrat, said tonight lawmakers will instead approve a stopgap funding measure of an as yet undetermined length. A so-called continuing resolution currently funding the government expires Dec. 18.
  • Hedging Gas Tumbles to 30% of Production as Prices Slump: Energy Markets. Natural gas companies are slashing their hedging of future output as prices tumble, raising the prospect of declines in drilling and production.
  • Mexico Drug War Death Toll Climbs to 30,196 Since 2006, Government Says. Mexican Attorney General Arturo Chavez said that 30,196 people have been killed in drug-related violence nationwide since President Felipe Calderon took office four years ago. The number of deaths from January to November this year was 12,456, Chavez said today in Mexico City.
  • Google(GOOG) Aims Twins Daggers at Microsoft's(MSFT) Heart: Tech by Rich Jaroslovsky. Forget about Google Inc.’s struggle with Facebook for eyeballs and programmers. Pay no attention to its fight with Apple Inc. over smartphones, or to any other tech rivalry. The search giant’s war with Microsoft Corp. is The Big One, the confrontation that will determine what kind of future Microsoft has, and maybe if it even has a future. And the two new weapons Google unsheathed last week carry an unmistakable message of mortal peril.
  • Visa(V), MasterCard(MA) Plunge as Federal Reserve Moves to Lower Debit-Card Fees. Visa Inc. and MasterCard Inc. plunged more than 10 percent in New York trading after the Federal Reserve Board proposed rules that could slash debit-card interchange fees by 90 percent.
  • Kynikos's Chanos Says China Real Estate Boom Goes 'Unabated'. China’s property boom hasn’t slowed even after the government announced policy tightening measures, Jim Chanos, founder of Kynikos Associates LP, said today. The real estate market has picked up, said Chanos in an interview with Carol Massar and Matt Miller on Bloomberg Television’s Street Smart program. Millions of Chinese apartments have gone empty, he said. China is “on a treadmill to hell,” Chanos said in the interview, repeating his view in January.
  • U.S. House Debates Obama's $858 Billion Tax-Cut Agreement With Republicans. The U.S. House debated President Barack Obama’s $858 billion tax-cut agreement, with Republicans saying the measure would aid job creation and most Democrats saying it provides too many tax breaks to the wealthy.

Wall Street Journal:
  • Fairholme's Berkowitz, Fernandez to Join St. Joe(JOE) Board. Florida developer St. Joe (JOE) is expected to name Fairholme's Bruce Berkowitz and Charlie Fernandez to its board, according to a source familiar with the matter.
  • U.S. Weighs Curbs on Biocrops. The U.S. Department of Agriculture is considering imposing restrictions for the first time on where and how a genetically modified crop may be grown, in a move that could eventually affect a wide swath of the farm industry.
  • California Asks Bond Underwriters To Detail Credit Default Swap Activity. Bill Lockyer, California's state treasurer, has amended a quarterly questionnaire for all 86 of the state's bond underwriters, forcing them to disclose what credit default swaps they have traded on the state's bonds, either for customers or for their own accounts. The disclosure forms could be sent to underwriters as soon as this week.
  • Republicans Kick the Spending Dope. The GOP passes its first big spending test—barely.
Business Insider:
LA Times:
  • Hedge Fund Cases Point to a Maze of Alleged Insider Trading. The federal government is waging a full-scale offensive against one of the most elite bastions on Wall Street.
  • California's Housing Market Slows in November. The median home price falls 2.3% from a year earlier to $255,000. Statewide sales decline 3.9% from October and 12.4% from November 2009. California's housing market slowed in November, with both sales and prices falling. Some economists predict further declines next year if more foreclosures hit the market and the job engine remains sluggish. That year-over-year drop was the second consecutive decline in the median price after 11 months of improvement.
Institutional Investor:
  • Medallion Poised For One of Its 'Worst' Years. Jim Simons’ Medallion Fund is poised to post one of its worst years in its 23-year history. However, this just underscores how astoundingly the fund has performed over the years. Through November, Medallion, which for years has only been open to partners, employees and friends, is said to be up around 25 percent or so, net of its 5 percent management fee and 44 percent performance fee, according to knowledgeable sources. However, it could actually be a little higher than this. At the very least, this works out to around 50 percent gross, which would still make it one of the year’s best performing hedge funds again. However, Medallion's net return has ranged between 40.5 percent and 84.1 percent in each of the past four years. Incredible.
Reuters:
  • China Property Tightening Effective: Vanke. Beijing's measures to cool "ridiculous" property prices have made some progress, but the risks of a bubble mean the tightening campaign is unlikely to ease up in the year ahead, the chairman of China's largest property developer said. Skyrocketing property prices in China's top cities have stocked public discontent, prompting the government to step in. China risked a Japanese-style real estate bubble if the government doesn't control what Wang described as ridiculous property price moves in its top-tier cities such as Beijing and Shanghai. "It could be really, really bad without the government stepping in," said the soft-spoken Wang, who was dressed in a minimalist style, with an open-collared white shirt and black jacket. "If the bubble bursts, Japan's past will be China's present." Although Wang worries about the risks of a bubble in China's property sector, he brushed aside talk that the country may end up worse than Dubai where a property price bubble imploded during the global financial crisis after years of heedless expansion. Among the loudest critics, legendary short-seller Jim Chanos has said he is shorting China because he expects the economy to implode in a real estate bust. China is "on an economic treadmill to hell" and the country's real estate-fueled bubble is "Dubai times 1,000," said Chanos. "It's not comparable. These are very different markets," said Wang, referring to Chanos' Dubai analogy.
  • Goldman(GS) Seeks to Expand Wealth Arm By a Third. Goldman Sachs Group Inc (GS) on Thursday said it is expanding its wealth management business worldwide and intends to boost its ranks of advisers by a third over the next few years.
  • BlackBerry Torch Lights Up RIM(RIMM) Results.
  • Oracle(ORCL) Software Sales Surge, Shares Rise.
Financial Times:
  • The U.K., France and Germany are in talks aimed at freezing the European Union budget until 2020. While German Chancellor Angela Merkel and French President Nicolas Sarkozy support the letter, they want to keep it secret to avoid diplomatic problems with other EU countries.
The Guardian:
Irish Examiner:
  • Cost of Insuring Against Ireland Default Rises. THE cost of insuring Irish bank bonds against default increased after legislators approved a burden-sharing bill analysts said was harsher than expected. The new law compels junior bondholders to share the cost of rescuing lenders after the Government was forced to accept a €85 billion aid package. The Credit Institutions (Stablisation) Bill 2010, gives the finance minister the power to change bondholders’ rights, including interest and principal payments, as well as impose debt-for-equity swaps and asset transfers. It’s "a harsh bill," Eleonore Lamberty, an analyst at ING Bank in Amsterdam, wrote in a client note. The measure "will intensify the burden-sharing fear and will cause further pressure on subordinated bonds of pan-European banks which have received state aid," she wrote.
21st Century Business Herald:
  • Shanghai may impose a property tax on areas of new homes that exceed 200 square meters.
  • China aims to cut energy consumption per unit of gross domestic product by 16% in five years by 2015, citing people helping draft the five-year energy-reduction targets starting from 2011.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (ABC), target $38.
  • Rated (ACOM) Buy, target $40.
Needham:
  • Rated (JNPR) Buy, target $42.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 104.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 105.50 unch.
  • S&P 500 futures -.07%
  • NASDAQ 100 futures -.01%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
10:00 am EST
  • Leading Indicators for November are estimated to rise +1.1% versus a +.5% gain in October.
Upcoming Splits
  • (AME) 3-for-2
Other Potential Market Movers
  • None of note
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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