Thursday, April 21, 2011

Thursday Watch

Evening Headlines

  • Global Supply-Chain Repairs May Spur Investment Powering Economic Growth. Repairing supply chains frayed by Japan’s earthquake and surging fuel prices may provide a further spur to business investment powering global economic growth. Joseph Carson, director of global economic research at AllianceBernstein LP in New York, says companies exploiting new ways to ensure cost-effective delivery of raw materials and their own goods may help extend last year’s 5.4 percent surge in worldwide fixed investment. That may boost spending in the U.S. alone beyond the 8 percent he estimates for this year, double the pace of 2010 and more than three times the projected rate of consumer demand. “Recent events raise questions over the global supply chain and reliance on single-source suppliers,” said Carson, a former analyst at General Motors Corp. A shift “could add fuel for a prolonged investment cycle that would have been impossible to predict a year ago.”
  • Crude Oil Rises for a Third Day Amid Outlook for Improving Global Demand. Crude oil for June delivery gained as much as 55 cents to $112 a barrel, in electronic trading on the New York Mercantile Exchange. It was at $111.88 at 10:16 a.m. Sydney time. Yesterday, the contract climbed $3.17 to $111.45, the highest since April 8. Prices are up 34 percent the past year. Brent crude oil for June settlement advanced 49 cents, or 0.4 percent, to $124.34 a barrel. It rose $2.52, or 2.1 percent, to end the session at $123.85 a barrel on the London-based ICE Futures Europe exchange yesterday, the highest settlement since April 11.
  • Tepco Must End 'Whack-a-Mole,' Cover Fukushima Reactors as Typhoons Loom. Tokyo Electric Power Co. must speed up plans to cover reactors at its crippled nuclear plant and drain tainted water to prevent more radiation leaks as Japan’s typhoon season approaches, engineering professors said.
  • Emerging Stocks Face Risk of Earnings Downgrades, Citi Says. The pace of earnings growth in emerging markets is slowing, leading to an increased risk of downgrades to analysts' profit estimates in coming months, according to Citigroup Inc.(C). Analysts are now predicting 12-month per-share earnings growth of 16%, compared with an average estimate of 30% in early 2010, analysts led by Geoffrey Dennis wrote in a report. "Investors are worried about top-line growth due to gross domestic product downgrades and margin pressure due to rising commodity prices and higher wages," teh report said.
  • Mongolia Rail Boom Seen Breaking China's Rare Earths Grip: Freight Markets. Mongolia’s aim of quadrupling its rail network will send coal, copper and rare earths to nations such as Japan and South Korea under a plan to reduce dependence on the Chinese market and boost economic development.
  • BP(BP) Sues Transocean(RIG) Seeking to Recover Billions in Damages for Gulf Spill. BP Plc (BP/) sued Transocean Ltd. (RIG), owner and operator of the Deepwater Horizon oil drilling rig that exploded one year ago today, saying the company is to blame for the accident and seeking to recover costs for billions of dollars in damages related to the Gulf of Mexico oil spill. BP said in a complaint filed today in federal court in New Orleans that it has already incurred costs of $17.7 billion and took a pre-tax charge last year of $40.9 billion in relation to the spill. The London-based company said that without Transocean’s “misconduct,” there wouldn’t have been any explosion, fire, deaths or oil spill.
  • Brazil Raises Rate to 12%, Slowing Pace on Currency, Steps to Curb Credit. Brazil’s central bank slowed the pace of rate increases on a less-than-unanimous vote, saying they need to implement policy adjustments “for a sufficiently long period” to bring inflation to target next year. Policy makers, led by central bank President Alexandre Tombini, voted 5-2 to raise the Selic rate by a quarter point to 12 percent from 11.75 percent, as expected by 15 of 58 analysts surveyed by Bloomberg. Forty-one analysts forecast a half-point increase and two predicted a pause. The bank said that two board members voted for a half-point increase. Consumer prices rose 6.44 percent in the year through mid- April, close to the upper limit of the central bank’s target range of 4.5 percent, plus or minus 2 percentage points.
Wall Street Journal:
  • Japan Imposes Ban on Nuclear Zone. Japan's government announced Thursday it is creating a formal ban on entry into the 20-kilometer evacuation zone around the quake-hit Fukushima Daiichi nuclear-power plant after some residents ignored pleas to stay away from the potentially hazardous areas. The announcement came as workers at the plant are pumping water that is flooding the basement of the turbine building for reactor No. 2, which contains more than 30 million times Japan's allowable level of Cesium-137, a long-lived radioactive isotope. At the current rate of pumping, it would take more than 100 days to remove the water. That doesn't take into account additional water that could enter—either through continuing operations to cool the reactor with water, or from other sources—or government plans to eventually pick up the pace of pumping.
  • Bernanke to Open Up as Fed Embarks on Era of Glasnost. Next Wednesday, Federal Reserve Chairman Ben Bernanke will do something no Fed chief has done before: Stand before a room full of journalists after officials conclude a policy meeting and answer questions about the central bank's decisions.
  • Chipotle(CMG) Faces U.S. Probe Over Hiring. The federal government has begun a criminal investigation into whether Chipotle Mexican Grill Inc. has knowingly hired illegal immigrants at its restaurants, a person familiar with the matter said. The criminal division of the U.S. Attorney office for Washington, D.C., wrote the burrito chain April 13 seeking documents related to hiring, the person familiar with the matter said. The company recently fired 40 employees at two Washington, D.C., restaurants who allegedly submitted false documents related to their eligibility to work in the U.S., this person said.
  • Ethnic Militias Fuel Tensions in Northern Afghanistan. Government officials in northern Afghanistan are building up their own ethnic-based militia groups to expand their influence and keep the Taliban at bay. But the spread of mostly Tajik and Uzbek militias is aggravating tensions with local Pashtuns—the country's largest ethnic group but a minority in the north—some of whom say they are being driven to turn to the Taliban, a largely Pashtun group, to defend their interests.
  • Uptick in Loans Could Aid Businesses. Three years after credit markets froze, two crucial forms of bank lending that remained stubbornly weak are finally showing signs of life, another indicator that the credit crisis is on the mend. Small-business lending and the use of existing lines of credit, both slow to rebound, are showing faint but intelligible signs of recovery. An uptick in the two forms of lending could help businesses expand and reduce unemployment, which are crucial to a broader economic recovery. Commercial and industrial lending, the most widely tracked measure of business-loan demand, had already improved at the end of last year, and growth continued for the second quarter in a row. But the rebound in lending remains in its early stages, with credit growth more anemic than in past recoveries.
  • Fleeing the Dollar Flood. The world tries to protect itself from U.S. monetary policy. Members of the International Monetary Fund emerged from their huddle in Washington last weekend resolved to keep every option open to slow the flood of dollars pouring into their countries, including capital controls. That's a dangerous game, given the need for investment to drive economic development. But it's also increasingly typical of the world's reaction to America's mismanagement of the dollar and its eroding financial leadership. The dollar is the world's reserve currency, and as such the Federal Reserve is the closest thing we have to a global central bank. Yet for at least a decade, and especially since late 2008, the Fed has operated as if its only concern is the U.S. domestic economy. The Fed's relentlessly easy monetary policy combined with Congress's reckless spending have driven investors out of the United States and into Asia, South America and elsewhere in search of higher returns and more sustainable growth. Even in the U.S., Americans are buying commodities (oil per barrel: $111) and gold ($1,500 an ounce) as a dollar hedge, and the state of Utah recently took steps to make it easier for citizens to buy and sell gold as a de facto alternative currency. Whether or not these prove to be wise investments, they are certainly signals of mistrust in Washington's economic stewardship. At an economic town hall this week, President Obama blamed "speculators" for rising oil prices. He should have mentioned the Fed and his own Treasury, which have encouraged the world to invest in hedges against the falling dollar. Chairman Ben Bernanke and Mr. Geithner have deliberately pursued a policy of unprecedented monetary and spending stimulus to reflate the economy and boost asset prices. The bill is coming due in a weak dollar, food and energy inflation, and the decline of U.S. economic credibility.
  • Apple(AAPL) Profit Leaps, Easily Outpaces Forecasts. Apple reported a profit that blew past analysts' estimates, pushing its shares higher, as sales of its iPhones and Macs easily topped what analysts expected. The maker of computers and personal electronics reported a net profit of $5.99 billion, or $6.40 a share, in its fiscal second quarter. That compared with $3.33 a share a year earlier on the same basis. On the sales side, Apple garnered $24.67 billion in revenue, a full 83 percent higher than $13.499 billion from a year before. Analysts who follow Apple expected the company to report a profit of $5.37 a share on sales of $22.383 billion, according to an estimate compiled by Thomson Reuters. Apple's gross margins for the second quarter came in at 41.4 percent, compared with 41.7 percent a year earlier. The company said it expects June quarter earnings of $5.03 a share on sales of $23 billion. The company has a reputation among investors for consistently low-balling its financial outlook. In the quarter, the company sold 3.76 million Macintosh computers and 18.65 million iPhones. Both figures were above analysts' estimates, which stood at 3.64 million and 16.3 million, respectively. "You've got a company, it's best capturing the profits going on in the mobile space. The iPhone continues to set records," said analyst Colin Gillis at BGC Partners. However, sales of iPods and iPads came in short of estimates. Sales of iPods were 9 million, versus expectations of 9.85 million. The number of iPads sold was 4.69 million. Some analysts had projected shipments of closer to or even more than 6 million for the tablet computer launched on March 11. But the lower-than-expected number could be attributed to the fact that Apple recognizes revenue from its stores when its customers receive the products. The initial wait time for the iPad 2 was four to five weeks. "The iPad numbers were light though not really surprised. We don't even have full year data on it. Also in the quarter the product got refreshed," Gillis said. "I was looking for 6 million in sales." Shares of Apple were about 3 percent higher in extended trading.
Business Insider:
Zero Hedge:
  • Meet Keratea: Greece's War Zone. One of the more interesting "war zones" that most have never heard of is not in North Africe, nor in the Middle East, but in Greece. Meet Keratea, a small city of 15,000 people located close to Athens, where after over 100 days of struggle between authorities and the broder population, the riot police has officially decided to abdicate the city to its fate in what is the first popular mini-revolution in the developed world.
CNN Money:
  • AIG(AIG) Stock's Slide May Hurt Taxpayers. AIG may not generate as much outrage as it did in 2008 and 2009 when the financial sector was in freefall. But I've got 1.655 billion reasons why you should still care about the insurance giant. The Treasury Department owns a 92% stake in AIG: 1.655 billion shares. And that investment is dangerously close to slipping into the red.
NY Post:
  • Awakening to Obama's 'Hosni' Hell. First, the bad news. If you're keeping score at home, another day passed with more slaughter of demonstrators in the streets of Syria without serious objection from the White House. The stalemate in Libya remained a stalemate and Jordan can't get a handle on a new wave of protesters. Now, for the really bad news. There are increasing signs that the "Arab Awakening" is a gift to Iran and its terrorist franchises. In Bahrain and especially Yemen, anti-American and anti-Western forces are filling the gaps as government control shrinks. And now for the worst news. The most dangerous developments are happening in Egypt, which was a bulwark for 30 years against Iranian expansion and Arab Islamic fundamentalists. But the risky departure of Hosni Mubarak, under American pressure, threw the door wide open to both and the results already are disturbing. Many people saw this coming -- but apparently, they did not include a single soul in the White House.
Boston Herald:
  • Spillover Effect Can't Be Less Drilling. Much has transpired since the disaster, both positive and negative. On the positive side, the widely-predicted environmental disaster has not materialized. The combination of man-made efforts to contain the spill and the earth’s own resiliency in the face of both natural and man-caused environmental disasters have limited the effects of the accident. The environmental damage should not be minimized but the effects have fallen far short of what many experts expected.
Lloyd's List:
  • Grand China Shipping plans to build a fleet of more than 70 container vessels, with a combined capacity of 240,000 boxes, by 2015, citing Senior Vice President Gary Luo.
Rasmussen Reports:
  • Donald Trump: The $7 Billion Dollar Man. Donald Trump, who has said he looks forward to filing disclosure statements if he becomes a presidential candidate, has a net worth of more than $7 billion, sources told POLITICO. The eye-popping figure is far higher than the $2.7 billion that Forbes Magazine valued his net worth to be last month.
  • China Bank Regulator: Western Loose Monetary Policy Fueling Global Inflation. The ultra-loose monetary policies in developed countries are driving up global inflation, China's top banking regulator said in comments published on Thursday. "The spill-over effect of quantitative policy easing in major economies is becoming more evident. Global inflation is on the rise while the sovereign debt crisis is deepening," Liu Mingkang, Chairman of the China Banking Regulatory Commission, said in a speech published on the agency's website (
  • EU's Rehn: Finland Mustn't Hold Up Portugal Aid. Finland needs to take a stance on aid to Portugal by a May 16 euro zone finance ministers' meeting, the European Union's economic and monetary affairs commissioner, Olli Rehn, said. Meeting that time frame, however, could prove difficult because Finland may not have a new government by then following its parliamentary elections last Sunday. "Democracy and election result have to be respected," Rehn, who is Finnish, told the daily Helsingin Sanomat in an interview. "But in parallel with that, the euro group must be able to make such decisions that prevent Portugal from drifting into insolvency." His remarks, published early on Thursday, followed Finland's Sunday parliamentary elections in which the euro-sceptic True Finns party scored big gains, which raised fears that Finland could derail a bailout for Portugal.
  • Gingrich Derides Obama Over Energy Policy. Rising gas prices threaten to derail the fragile U.S. economic recovery and are becoming a potent campaign issue in the Republican race to challenge Obama in 2012. Republican former House of Representatives Speaker Newt Gingrich, mulling a run for the White House, on Wednesday derided President Barack Obama over energy policy and high gasoline prices. Gingrich, who was holding meetings with members of the Tea Party movement and other conservative activists, tried to get ahead of the curve, blaming high prices for heating oil and gasoline on Obama, and outlining proposals of his own. "Obama is waging war on American energy," he said. He also proposed lifting a ban on oil shale development in the West; imposing new oil and gas royalties; giving coastal states federal royalty revenue sharing and enacting a law to reduce "frivolous" lawsuits sometimes used to stop energy projects.
  • Qualcomm(QCOM) Beats Street, Raises 2011 Targets. Wireless chip maker Qualcomm Inc (QCOM.O) posted better than expected quarterly results and raised its full-year financial targets on improving demand for advanced phones, and its shares rose 5 percent. The company, which also sells technology licenses, said demand was strong in most regions of the world and that investor concerns about the wireless phone sales fall-out from massive earthquake in Japan were overdone.
  • F5 Networks(FFIV) Sees Strong Q3; Allays Japan Fears. Network equipment maker F5 Networks Inc expects to post a strong third-quarter profit, as the boom in mobile computing and the need to speed up Internet traffic drive demand for its products. F5 shares were up 13 percent at $112.43 after the bell in heavy trade. The stock closed at $99.74 on Wednesday on Nasdaq.
  • Special Report: From Hannibal Lecter to Bernie Madoff.
Global Times:
  • China Banking Regulator to Launch Mortgage Stress Testing. The country's banking regulator will launch a new round of stress tests for property loans to minimize the financial risks, while a senior researcher at a government think tank said on Wednesday that further credit tightening policies may be needed. The China Banking Regulatory Commission said in a statement on its website late Tuesday that banks should start stress tests on lending in the property market, citing a speech by commission chairman, Liu Mingkang. Banks should strictly control financial risks, both in mortgage loans for homebuyers and in lending to developers, the China Banking Regulatory Commission statement said. "There are signs that there is still a risk of a property bubble, and further credit tightening policies may be the most effective measure to cool down the over-heated market, judging by the current excess in liquidity," said Wang Jun, deputy director of the research department with the China Center for International Economic Exchanges, a government think tank, on Wednesday. "Some policies, like limiting home purchases for homeowners of multiple properties, is a short-term strategy since money being squeezed out of the property market can enter into other areas like commodities, thus adding to the country's inflationary pressure," Wang said. "Minimum down payments for multiple home purchases could be higher, for instance," Wang added.
  • Shanghai will increase housing subsidies for "top young professionals" to attract them to work in the city, citing a local government official. The city has been losing out on top professionals as high living costs and housing prices are discouraging them from settling in Shanghai, according to the report.
21st Century Business Herald:
  • China's banking regulator has required the nation's lenders to incorporate price drops of as much as 50% in seven cities in stress tests on their property loans, citing an unidentified bank official. Banks were told to do the tests for "high-risk" cities of Shanghai, Beijing, Shenzhen, Guangzhou, Chongqing, Hangzhou and Nanjing. The stress tests include three scenarios: if property prices drop 30% and interest rates increase 27 basis points, if prices drop 40% and rates rise 54 basis points and if prices drop 50% with rates up 108 basis points, according to the report.
  • China March coal imports fell 40.7% to 9.05 million tons compared with a year earlier.
Evening Recommendations
  • Reiterated Buy on (UNP), target $112.
  • Reiterated Buy on (HBI), target $39.
  • Reiterated Overweight on (FCX), target $75.
Night Trading
  • Asian equity indices are unch. to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 105.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 112.50 -3.25 basis points.
  • S&P 500 futures +.37%.
  • NASDAQ 100 futures +.88%.
Morning Preview Links

Earnings of Note
  • (GR)/1.25
  • (ESI)/2.54
  • (APD)/1.39
  • (PPG)/1.33
  • (LLL)/1.82
  • (BLK)/2.76
  • (ALXN)/.51
  • (BBT)/.30
  • (MAN)/.32
  • (VZ)/.50
  • (BAX)/.93
  • (BIIB)/1.41
  • (MCD)/1.14
  • (TRV)/1.48
  • (NEM)/1.00
  • (SLB)/.75
  • (GE)/.28
  • (UNH)/.88
  • (DD)/1.37
  • (MS)/.40
  • (PM)/1.04
  • (SHW)/.53
  • (DHR)/.57
  • (COF)/1.54
  • (CYMI)/.81
  • (SNDK)/.99
  • (CB)/1.15
  • (STI)/.11
  • (DO)/1.41
  • (GNTX)/.29
  • (BX)/.41
  • (LUV)/.03
  • (IGT)/.20
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 390K versus 412K the prior week.
  • Continuing Claims are estimated to fall to 3675K versus 3680K prior.
10:00 am EST
  • The House Price Index for February is estimated to fall -.3% versus a -.3% decline in January.
  • Leading Indicators for March are estimated to rise +.3% versus a +.8% gain in February.
  • Philly Fed for April is estimated to fall to 36.8 versus a reading of 43.4 in March.
Upcoming Splits
  • (EEQ) 2-for-1
  • (EEP) 2-for-1
  • (HEI) 5-for-4
Other Potential Market Movers
  • The $14 Billion 5-Year TIPS Auction, weekly Bloomberg Consumer Comfort Index, Bloomberg April Economic Expectations Index and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

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