Thursday, February 17, 2011

Thursday Watch


Evening Headlines

Bloomberg:

  • Mideast Protests Spread to Libya Amid Bahrain Apologies, Clashes in Yemen. Pro-democracy demonstrations stretched into a third day in Bahrain, while police and anti- regime protesters clashed in Yemen and Libya, the latest country in the region hit by demands for change. Hundreds of Bahrainis gathered yesterday at the funeral of a demonstrator, who died in protests Feb. 15. They are demanding democracy and the ouster of Prime Minister Sheikh Khalifa bin Salman al-Khalifa, a member of the Sunni Muslim royal family who has held the post for four decades. The dissent in Bahrain, home to the U.S. Navy’s Fifth Fleet, follows the toppling of autocratic rulers by popular movements in Egypt and Tunisia and marks the spread of unrest into the Persian Gulf, where most of the Middle East’s oil is produced. Gulf states, including Saudi Arabia and the United Arab Emirates, are key U.S. allies, and Yemen is supported by the Obama administration in a campaign against al-Qaeda. “These movements are emboldening everybody who has grievances, whether they are a minority that wants to have equal rights or a majority that wants a functioning democracy,” Ebrahim Sharif, a Sunni who heads Bahrain’s National Democratic Action Society, said in an interview yesterday. “There is a feeling of people being empowered by these movements, that we are powerful. I think we are affecting even Iran.”
  • Two Iranian Warships May Pass Through Suez Canal, Israel's Lieberman Says. Two Iranian warships in the Red Sea are preparing to transit Egypt’s Suez Canal en route to Syria, Israel’s foreign minister said, calling it another of Iran’s “provocations.” The Suez Canal Authority’s head of traffic, Ahmed El Manakhly, speaking by telephone, said yesterday that he hadn’t been informed of any Iranian warships planning to pass through the waterway. El Manakhly said military ships passing through the canal must first obtain permission from the Ministry of Defense and the Ministry of Foreign Affairs.
  • NYSE(NYX) Euronext Sued Over Deutsche Boerse Takeover. NYSE Euronext, the parent company of the New York Stock Exchange, was sued by shareholders seeking to block its planned $9.53 billion sale to Deutsche Boerse AG, a deal that would create the world’s largest owner of equities and derivatives markets. The all-stock transaction is “grossly inadequate” and resulted from a flawed process, lawyers for shareholder Samuel T. Cohen said in a complaint made public today in Delaware Chancery Court in Wilmington. The proposed sale values NYSE at less than targets in similar deals, such as London Stock Exchange Group Plc’s purchase of Canada’s TMX Group Inc., according to the lawsuit. “There appears to have been no sales process, and the proposed transaction did not emerge from an auction,” Cohen’s lawyers said in the complaint. “A board that provides a would- be acquirer with an exclusive opportunity to bid on a company and fails to conduct a market-check, does not act in the interests of shareholders.” Investors said in another lawsuit, filed today in New York Supreme Court, said the sale will result in New York Stock Exchange shareholders owning 40 percent of the acquired company, with the remaining 60 percent held by Deutsche Boerse AG. The sale offers “no meaningful premium to NYSE’s public shareholders” and will “result in a loss of control of the company and its prospects,” according to the complaint.
  • Citigroup(C) Gives Senior Executives Stock-Option Bonus on 18 Million Shares. Citigroup Inc., the third-largest U.S. bank by assets, granted 15 executives options on 18.2 million shares as part of their 2010 pay, according to filings. Banks are under pressure to curb bonuses after receiving taxpayer-funded bailouts during the financial crisis of 2008. Citigroup received a $45 billion bailout, some of which the U.S. Treasury converted into a stake in the lender last year. Citigroup last month awarded separate stock bonuses for executives valued at almost $50 million. Six, including Havens, Medina-Mora and Gerspach, also shared “stock salary” last year valued at more than $37 million on an annualized basis, according to a Sep. 24 filing.
  • China Money Rate Climbs on Speculation Reserve Ratio Will Rise. China’s benchmark money-market rate jumped the most in a week on speculation the central bank will lift banks’ reserve-requirement ratios to help curb inflation. The People’s Bank of China has ordered lenders to set aside more funds as reserves four times since October in an effort to drain liquidity from the financial system. Consumer prices increased 4.9 percent in January from a year earlier, exceeding policy makers 4 percent inflation ceiling for a fourth month, data showed this week. “There’s fear of a possible reserve-requirement hike very soon,” said Pin Ru Tan, a Singapore-based strategist at Royal Bank of Scotland Group Plc. The seven-day repurchase rate, a gauge of the availability of funds, rose 34 basis points to 2.93 percent, according to a daily fixing from the National Interbank Funding Center published at 11 a.m. in Shanghai. That’s the biggest increase since Feb. 9.
  • Fed Tells Banks to Stress-Test Capital for Recession With 11% Unemployment. The Federal Reserve ordered the 19 largest U.S. banks to test their capital levels against a scenario of renewed recession with unemployment rising above 11 percent, said two people with knowledge of the review. The banks stress-tested the performance of their loans, securities, earnings, and capital against at least three possible economic outcomes as part of a broader capital-planning exercise. The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans last month. The Fed will finish its review in March. “They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’ ” said Jonathan Hatcher, a credit strategist specializing in banks at New York-based Jefferies Group Inc. Regulators don’t want to see banks “come crawling back for help later,” he said.
Wall Street Journal:
  • Companies Prod SEC on Whistleblower Proposal. Large U.S. companies are asking the Securities and Exchange Commission to require that workers report wrongdoing to employers in order to be eligible for payments under the agency's new "whistleblower" program. Google Inc.(GOOG) and General Electric Co.(GE) are among the more than two dozen companies that have written letters to the SEC, asking the agency to revise its proposed rules for awarding bounties to workers who report information about corporate fraud or wrongdoing.
  • China Blocks U.S. Push on Web Freedom. A day after U.S. Secretary of State Hillary Clinton's pledge to promote Internet freedom world-wide, Chinese censors tried to snuff out efforts by U.S. diplomats to generate debate on the issue on Twitter-like microblogs in the country with the world's most Internet users—and its most sophisticated censorship system.
  • They Were Best Friends, Until the Feds Showed Up. Donald Longueuil and Noah Freeman were tight. They worked together as money managers at giant hedge fund SAC Capital Advisors. They skated together and vacationed together. And, prosecutors say, they traded on inside information together.
  • Study Shows Cancer Drug Avastin Treats Infant Eye Disease. An inexpensive drug therapy far surpassed a conventional laser procedure in fixing a leading cause of blindness in babies born prematurely, according to a new study.
  • Big Banks Face Fines on Role of Servicers. A review of mortgage-servicing practices by U.S. regulators found serious problems with internal controls and staffing levels at the companies, which are likely to result in formal enforcement action against more than a dozen major financial institutions, according to people familiar with the situation. The penalties against Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co. and 11 other home-loan servicers being investigated since last fall over breakdowns in procedures for payment collection, loan modifications and foreclosures could include fines and changes in how the companies operate, these people said.
  • Outlook for Food Prices: High. Corn to Cotton, Farmers Have Bevy of Planting Choices; Stockpiles Remain Thin.
MarketWatch:
  • What JPMorgan(JPM) CEO Knew Is Key To Madoff Suit. J.P. Morgan Chase & Co. Chief Executive James Dimon wasn't informed about a formal report that raised suspicions about Bernard Madoff prior to Madoff's arrest. But he did know about the bank's 2008 decision to pull money from many hedge funds, some of which turned out to be Madoff-related, according to people familiar with the Madoff case. It wasn't until after Mr. Madoff's December 2008 arrest that the CEO was given a full accounting of the firm's exposure and told that some of the funds had ties to Mr. Madoff, these people added.
  • 'Toxic' Securities Turn Lucrative for Banks. Investment banks and hedge funds are once again making money from a sector that was defunct only 18 months ago: U.S. mortgage-backed securities, the loan products that spread the credit crunch throughout the world. Only two years later, and despite the fact that many U.S. cities are on the edge of bankruptcy, these securities have turned into one of the most lucrative profit areas for banks, such as Credit Suisse Group, UBS AG or Société Générale SA.
Business Insider:
Zero Hedge:
  • Is Apple's(AAPL) Afterhours Weakness Based On The Assessment Of A Less Than Credible "Doctor?" As is by now well-known, Apple stock is underperforming after hours following reports of an allegedly sickly-looking Steve Jobs leaving the Stanford cancer center. The National Enquirer has released photos supposedly of an emaciated Jobs, yet one who is not readily identifiable as the Apple CEO. The National Enquirer, who initially reported the news today (to be published tomorrow), talked to critical-care physician Dr. Samuel Jacobson, who said, “Judging from the photos, he is close to terminal. I would say he has six weeks.” That said, given the reliability of The National Enquirer, waiting for further news before jumping to conclusions is advised. Furthermore, as TNW reports, "We’ve done a little digging into Dr. Samuel Jacobson. Jacobson appears to be a Florida based pulmonologist (breathing doctor) – not Oncologist. Which would naturally make you wonder just how qualified he is to diagnose someone via a photo, especially outside of his speciality."
New York Times:
  • Former Freddie CFO Gets Wells Notice. The former chief financial officer of Freddie Mac has been notified by securities regulators that they may soon file civil charges against him stemming from his tenure at the mortgage finance company, according to a recent public filing. Anthony Piszel, known as Buddy, who was Freddie’s C.F.O. from late 2006 to 2008, received a so-called Wells notice from the Securities and Exchange Commission, an indication the agency is considering an enforcement action against him.
  • A Life's Value May Depend on Government Agency. As the players here remake the nation’s vast regulatory system, they have been grappling with a subject that is more the province of poets and philosophers than bureaucrats: what is the value of a human life? The answer determines how much spending the government should require to prevent a single death.
Forbes:
CNN Money:
  • Illinois Governor Proposes Borrowing $8.7 Billion. A month after Illinois lawmakers approved a massive tax hike, Gov. Pat Quinn unveiled Wednesday a $35.4 billion budget that depends on state lawmakers approving $8.75 billion in borrowing largely to clear a towering stack of unpaid bills. The budget, which increases spending by $1.7 billion from the previous year and closes a $13 billion gap, slashes programs for the elderly, the poor and the disabled, but leaves education funding largely untouched. No layoffs of state workers are suggested.
Washington Post:
  • North Korea Has Completed Missile Facility, Satellite Imagery Shows. The latest satellite imagery indicates that North Korea has completed construction of a second - and more modern - missile launch facility, a vital step in its efforts to successfully launch intercontinental ballistic missiles. The images, first obtained by VOA News, indicate an expansive launch pad positioned next to a launch tower that stands more than 100 feet tall. Though analysts have known about the facility's construction for at least two years, the site's apparent completion - in spite of scarce domestic resources and international sanctions - suggests that long-range missile development remains a top priority in Pyongyang.
LA Times:
  • Bell 8: Six Officials Ordered to Stand Trial for Looting City Treasury. Six current or former Bell City Council members were ordered Wednesday to stand trial on felony charges that they drew extraordinary salaries for serving on boards and commissions that met so rarely that one elected official testified that he wasn’t even sure what the agencies did.
AppleInsider:
  • Apple's(AAPL) Steve Jobs to Meet With President Obama on Thursday. Apple CEO Steve Jobs will reportedly join Google chief executive Eric Schmidt and Facebook founder Mark Zuckerberg in a meeting with US President Barack Obama in San Francisco on Thursday. Though recent reports have alleged that Jobs' health has continued to decline, the executive is scheduled to attend a business leaders' event with President Obama Thursday evening, a source told ABC News.
Politico:
  • Dianne Feinstein: U.S. Intel Missed Warnings in Egypt. The chairwoman of the Senate Select Committee on Intelligence argued Wednesday that the U.S. intelligence community largely missed early warning signs of the unrest that ousted Egyptian President Hosni Mubarak last week, in part because American officials paid little attention to social media tools like Twitter and Facebook. “I mean, I’m not a big computer person, but I looked at Facebook, and I am not a member of Facebook, but you could get right in and you could see everything about it,” committee Chairwoman Dianne Feinstein (D-Calif.) said at an annual hearing on worldwide threats. “It seems to me that this ought to be watched very carefully to be able to give our policymakers and our leadership some advance notice, and I think we were at fault in that regard.”
  • House GOPers Propose Amendments to Defund Health Care Law. Among the dozens of amendments filed last night with the House Rules Committee are two that would attempt to defund the Democratic health care law passed last year. The limitation amendments are offered by Reps. Denny Rehberg (R-Mont.) and Cathy McMorris Rogers (R-Wash.). The measures will be voted along with the rest of the continuing resolution on Thursday. Rehberg’s amendment specifies that no “funds made available by this act may be paid to any employee, officer, contractor, or grantee of any department or agency…to implement the provisions of” the law. McMorris Rogers’ amendment takes aim at Internal Revenue Service officers. Like Republicans' previous attempt to pull the plug on the health care law, the Democrat-controlled Senate has shown no interest in defunding the law.
  • Darrell Issa's First Subpoena Targets Countrywide VIP Program. House Oversight and Government Reform Committee Chairman Darrell Issa’s first subpoena takes aim at Countrywide Financial’s VIP program, launching a probe that seeks to out lawmakers who got sweetheart terms on home loans. The California Republican issued an unusually wide-ranging subpoena for documents about the defunct lender’s program, demanding names, addresses and e-mail exchanges of all those involved, a major expansion of an inquiry launched in the preceding Congress.
Rasmussen Reports:
Reuters:
  • Williams(WMB) to Split in Two; Shares Surge. Williams Cos said on Wednesday it plans to split the company's pipeline and exploration businesses into two separate publicly traded entities, sending its shares up 12 percent. The U.S. company expects the split to speed up growth and increase the valuation of its assets, it said. Williams' board also raised the dividend 60 percent in the first quarter, with additional increases of 10 percent to 15 percent targeted for dividends paid starting in June 2012.
  • FDA Approves Wider Use of Allergan(AGN) Stomach Band. The U.S. Food and Drug Administration approved expanded use of Allergan Inc's stomach band, allowing it to be implanted in people who are less obese than those now approved as candidates for the weight-loss surgery, the drug company said on Wednesday.
  • U.S. Risk Council Breaks Non-Bank World Into Four. The new U.S. financial risk council has divided non-bank financial institutions that could be subject to additional oversight into four categories, including hedge funds and insurers. The Dodd-Frank law gives the government the authority to seize a large, failing financial institution so that it can be liquidated without causing too much chaos in the financial markets, such as occurred when Lehman Brothers went bankrupt in September of 2008. Under this system, the new Financial Stability Oversight Council is supposed to designate financial firms other than banks that are "predominantly engaged in financial activities" and could pose a threat to financial markets. These firms will be overseen by the Federal Reserve.
  • Libyan Online Protesters Prepare For "day of rage". Protesters in Libya were planning to take to the streets for a "day of rage," on Thursday inspired by uprisings in Egypt and Tunisia, but rights groups warned of a possible crackdown by security forces. In a country where public dissent is rare, plans for the protests were being circulated by anonymous activists on social networking sites such as Facebook and Twitter, and it was not clear if the demonstrations would materialise.
  • Gresham - CFTC Limits Unfairly "insulate" Ag Markets.
  • Nvidia(NVDA) Sees Strong Q1 as Mobile Chip Takes Off. Nvidia Corp forecast quarterly revenue above expectations and said revenue of its Tegra 2 mobile chips were accelerating. Sales of Nvidia's new mobile chips in the current quarter will become larger than revenue from its dwindling chipset business and grow over the year as a next-generation processor also hits the market, executives said. Nvidia's shares lost ground in after hours trade as some investors focused on the company's rising operating expenses.
  • US Senator Pushes For Oil Sands Pipeline Approval. A leading Republican Senator on Wednesday called for the White House to approve the Keystone pipeline that would transport crude from Canadian oil sands to the Gulf coast. "Boosting trade with Canada offers tremendous opportunity to improve our energy security," Lugar said in a speech to the Alliance to Save Energy. "This pipeline is critical to American efforts to enhance the reliability of our oil supplies," he added. Lugar said the United States is too dependent on oil from hostile nations and the government must work to decrease vulnerability to supply shocks from the Middle East.
  • NetApp's(NTAP) Profit Outlook Disappoints, Shares Fall. Data storage equipment maker NetApp Inc. gave a weaker-than-expected profit forecast, blaming a components shortage, pushing the company's shares down 4 percent.
  • Miner Cliffs(CLF) Tops Profit Estimate, Stock Up 10%. Cliffs Natural Resources Inc reported a better-than-expected surge in quarterly profit as demand and prices for its iron ore and steel-making coal soared, and its shares rose nearly 10 percent.
  • Rubicon(RBCN) Q4 Tops Est; Sees Strong Q1 On Robust Demand. Rubicon Technology Inc's quarterly results trumped market estimates and the electronic materials provider forecast a robust first quarter helped by increasing demand from LED chip manufacturers, sending its shares up 14 percent in extended trade.
South China Morning Post:
  • One-Third of Chinese Mainland Firms Plan Pay Raises. One-third of foreign businesses on the mainland are expected to raise wages by more than 10 per cent this year as companies compete in the fast-growing market where highly skilled employees are in short supply.
Shanghai Securities News:
  • China's consumer prices may rise about 5.2% in February compared with a year earlier, Xu Pingsheng, a researcher with the State Information Center, wrote in a commentary. Food and residence-related prices drove the increase, Xu wrote.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (WCG), target raised to $44.
  • Reiterated Buy on (OC), target raised to $47.
  • Reiterated Buy on (RIG), target raised to $88.
  • Reiterated Buy on (JAH), target raised to $50.
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.50 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 121.0 -.5 basis point.
  • S&P 500 futures -.17%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (CPO)/.75
  • (STRA)/2.66
  • (WTW)/.55
  • (H)/.06
  • (PCG)/.72
  • (EOG)/.26
  • (DPS)/.64
  • (TBL)/.50
  • (WMB)/.28
  • (SPW)/1.10
  • (SJM)/1.26
  • (DUK)/.23
  • (TRW)/1.24
  • (TTC)/.41
  • (JWN)/.99
  • (SPWRA)/1.01
  • (CECO)/.78
  • (CF)/2.65
  • (RRGB)/.04
  • (INTU)/.31
  • (BUCY)/1.30
  • (APA)/2.45
  • (VMI)/1.13
Economic Releases
8:30 am EST
  • The Consumer Price Index for January is estimated to rise +.3% versus a +.5% gain in December.
  • The CPI Ex Food & Energy for January is estimated to rise +.1% versus a +.1% gain in December.
  • Initial Jobless Claims for last week are estimated to rise to 400K versus 383K the prior week.
  • Continuing Claims are estimated to rise to 3893K versus 3888K prior.
10:00 am EST
  • Leading Indicators for January are estimated to rise +.2% versus a +1.0% gain in December.
  • Philly Fed for February is estimated to rise to 21.0 versus a reading of 19.3 in January.
Upcoming Splits
  • (SFUN) 4-for-1
Other Potential Market Movers
  • The Fed's Evans speaking, $9 Billion 30-Year TIPS Auction, 4Q Mortgage Delinquencies, 4Q Mortgage Foreclosures, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index, Oppenheimer Semi Summit, Keefe Bruyette Woods Cards/Payments/Financial Tech Symposium, (DUK) investor meeting, (DIS) investor conference and the (JDSU) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and mining 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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