Wednesday, June 22, 2011

Wednesday Watch

Evening Headlines


  • Papandreou Wins Confidence Vote, Raising Rescue Chances. Greek Prime Minister George Papandreou won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid for the country. A total of 155 lawmakers supported the motion in the 300- seat parliament in Athens early this morning, with 143 voting against, the speaker, Filippos Petsalnikos, said. Papandreou reshuffled his Cabinet and sought the approval of the chamber after fending off a revolt within his socialist Pasok party last week. After the vote, police used tear gas and stun grenades to disperse thousands of citizens protesting planned budget cuts. “If we give up in the middle of the road, history will judge us harshly,” Papandreou said as he wound up the debate in the legislature. “The impression the political class in this country gives is that it hasn’t understood the seriousness of the crisis.” With the confidence vote behind him, attention now turns to whether the premier can push through parliamentary approval next week of a 78 billion-euro ($112 billion) package of budget cuts to stave off the threat of default. European finance ministers said this week that they would hold off on approving a 12 billion-euro payment to the country promised for July until passage of the plans to cut the deficit, sell state assets and impose a “crisis levy” on wages.
  • Oil Declines as Greece Still Faces Debt Challenges, OPEC Supply Increases. Futures slipped as much as 0.7 percent today after Papandreou won the support of 155 out of 300 lawmakers in a confidence vote in Athens. He still has to pass 78 billion euros ($112 billion) in budget cuts to stave off the threat of default. The International Energy Agency said Saudi Arabian oil production may be rising and JPMorgan Chase & Co. said output by the United Arab Emirates and Kuwait is increasing. Crude in New York tumbled as much as 0.8 percent yesterday after David Fyfe, head of the IEA’s industry and markets division, said that the agency is seeing signs Saudi oil production is rising.
  • Apple(AAPL) Said to Prepare Faster iPhone for September. Apple Inc. (AAPL) plans to introduce a new iPhone in September that boasts a stronger chip for processing data and a more advanced camera, according to two people familiar with the plans. The device will include the A5 processor, the more powerful chip that Apple added to the iPad 2 earlier this year, along with an 8-megapixel camera, up from the 5-megapixel model in the iPhone 4, said the people, who asked not to be identified because the details aren’t public. Apple is also testing a new version of the iPad that has a higher resolution screen, similar to the one now used in the iPhone 4, one of the people said.
  • Poll: Americans Worse Than When Obama Inaugurated. Two years after the official start of the recovery, the American people remain pessimistic about their current economic circumstances and longer-term prospects. Fewer than a quarter of people see signs of improvement in the economy, and two-thirds say they believe the country is on the wrong track overall, according to a Bloomberg National Poll conducted June 17-20. “Gas prices are higher, grocery prices are higher, transportation prices are higher,” says poll respondent Ronda Brockway, 54, an insurance company manager and political independent who lives in a suburb of Harrisburg, Pennsylvania. “The jobs situation nationwide is very poor.” By a 44 percent to 34 percent margin, Americans say they believe they are worse off than when President Barack Obama took office in early 2009. The gloom covers the immediate future, with fewer than 1 in 10 people expecting unemployment to return to pre-recession levels within the next two years, and it extends to the next generation. More than half of respondents say their children are destined to have a lower standard of living than they do, upending a traditional touchstone of the American Dream. As the public grasps for solutions, the Republican Party is breaking through in the message war on the budget and economy. A majority of Americans say job growth would best be revived with prescriptions favored by the party: cuts in government spending and taxes, the Bloomberg Poll shows. Even 40 percent of Democrats share that view. “Unless you limit the actual money coming in to the government and give businesses a break, I don’t think you’re going to have a bounce-back in the economy,” says poll respondent Michael Jefferys, 37, a business analyst for a building supply manufacturer. The economy “is at a teetering point: Depending on what changes are made, it could take a dramatic fall or start to revive,” says Jefferys, a political independent who lives in Pitman, New Jersey. The buying power of Americans’ wages is declining at the fastest rate since 2008, with real average hourly earnings down 1.6 percent during the 12 months ended in May. Job growth also has slowed, and the unemployment rate in May reached 9.1 percent, the highest level so far this year. “In this day and age we all have to spend less, and that includes the government itself,” says poll respondent Carolyn Beller, 66, a retired financial-services worker and independent voter in Hull, Massachusetts. “We all have to put a stop to this nonsense of spending.” Republican criticism of the federal budget growth has gained traction with the public. Fifty-five percent of poll respondents say cuts in spending and taxes would be more likely to bring down unemployment than would maintaining or increasing government spending, as Obama did in his 2009 stimulus package.
  • Obama Gets 30% Certain to Support Re-Election in Economy Poll. Only 30 percent of respondents said they are certain to vote for the president and 36 percent said they definitely won’t. Among likely independent voters, only 23 percent said they will back his re-election, while 36 percent said they definitely will look for another candidate. “As far as the economy goes, I don’t see that he has delivered on the change that he promised,” said Sharon Ortiz, a 38-year-old independent voter from Hampton, Virginia, who supported Obama in 2008. “The jobs that he promised -- I haven’t seen it.”
  • China Reverse-Merger Battle Pits Morgan Stanley Against Hedge Fund Shorts. On the morning of May 18, Kevin Barnes published a report accusing executives of Chinese fertilizer maker Yongye International Inc. (YONG) of using acquisitions to loot cash from the company and manipulate earnings.
  • Bryson Sides With Republicans on Taxes. John Bryson, President Barack Obama’s nominee for Commerce secretary, sided with Republicans in Congress, saying companies need lower taxes and that a labor complaint against Boeing Co. (BA) was “not sound.” Bryson, facing questions from lawmakers who said Obama has produced costly regulations and failed to spur job growth, said today he would push as Commerce secretary to curb rules burdening companies, cut taxes and spur trade. “I‘m committed to helping simplify regulations that are difficult to understand, eliminate regulations that are ineffective and speed up regulatory decisions so American businesses can have the certainty they need,’’ Bryson testified to the Senate Commerce, Science and Transportation Committee.
  • Banks Will Be Sued if Foreclosure Talks Collapse, Attorneys General Say. Two state attorneys general who are among those leading negotiations with the five largest U.S. mortgage servicers over their foreclosure practices said the banks would be sued if a settlement isn’t reached.
  • Paulson Not Alone as Sino-Forest Hurts Davis Funds. John Paulson isn’t the only prominent fund manager who has been hurt by the plunge in Sino- Forest Corp. shares. Christopher Davis, a value investor who researches stocks and holds them for long periods, owned 13 percent of the Chinese tree-plantation owner as of April 29 through his Tucson, Arizona-based Davis Selected Advisers LP. The value of that stake has since dropped 92 percent, or more than $600 million, as Muddy Waters LLC, an investment firm run by Carson Block, said Sino-Forest overstated its timber holdings.
  • China Companies Reduce Some Dividends 20% Awaiting Tax Guidance. Air China Ltd. and China Petroleum & Chemical Corp. are among companies withholding 20 percent of dividend payments to foreigners as they await guidance on how to handle the unwinding of a 17-year-old tax exemption.
  • Silver-Coin Sales 'Booming' as Investors Seek Haven, Mint Says. Silver-coin sales from Australia’s Perth Mint, which was founded in 1899 and processes all of the country’s bullion, have surged to a record as buyers seek to protect their wealth with the metal known as poor man’s gold. The mint sold 10.7 million 1-ounce silver coins since July 1 last year, according to Sales and Marketing Director Ron Currie. That’s 66 percent higher than the previous full fiscal year and about 10-fold more than five years earlier. Sales of 1- ounce gold coins will be close to a record, he said. The soaring demand adds to signs investors are stepping up precious-metal purchases as Europe’s governments tackle a sovereign-debt crisis and central banks led by the U.S. Federal Reserve print cash to stimulate their economies, potentially devaluing paper currencies.
Wall Street Journal:
  • IRS Must Beef Up Oversight of Its Own Workers, Report Finds. The Internal Revenue Service must beef up oversight of its own employees after missing 133 employees who may not have complied with tax law, according to a Treasury Department report released Tuesday.
  • States Near Tobacco Deal. Cigarette Makers, Arguing '98 Pact Favors Small Rivals, Could Recoup $2 Billion.
  • Saudi Suggests 'Squeezing' Iran Over Nuclear Ambitions. A leading member of Saudi Arabia's royal family warned that Riyadh could seek to supplant Iran's oil exports if the country doesn't constrain its nuclear program, a move that could hobble Tehran's finances. In closed-door remarks earlier this month, Saudi Prince Turki al-Faisal also strongly implied that Riyadh would be forced to follow suit if Tehran pushed ahead to develop nuclear weapons and said Saudi Arabia is preparing to employ all of its economic, diplomatic and security assets to confront Tehran's regional ambitions.
  • SEC Weighs Curbs on Backdoor Stock Listing. Securities and Exchange Commission Chairman Mary Schapiro said the agency is considering several options to address its concerns about so-called reverse-merger companies that use legal but backdoor methods to list shares of their stocks in North America. Though she declined to provide details, she said the SEC is weighing "a menu of ideas" but they aren't "ready for prime time, yet."
  • G-20 to Press U.S. to End Aid for Biofuels Industry. Trading Partners Take Issue With Washington's Use of Policy to Promote Industry; EU Wants Tax Credit Scrapped.
  • Bridgewater Goes Large. The world's biggest hedge-fund firm just got bigger with the launch of one of the largest new funds ever. Bridgewater Associates is nearly finished launching a $10 billion fund, the latest sign of the hedge-fund industry's rebound from the 2008 financial crisis. Hedge funds are mopping up billions from big investors with few other places to park their cash in an era of ultralow interest rates and volatile stock-market returns. Industry assets as of March 31 topped the peak of early 2008, showing how wealthy families, college endowments, sovereign-wealth funds and other large investors have regained their appetite for riskier strategies. Hedge funds also are benefiting from pension funds' eagerness to use so-called alternative investments to juice returns and fill funding gaps. Founded 36 years ago by Ray Dalio, a Harvard Business School graduate known for quirky philosophical musings, the Westport, Conn., Bridgewater said its assets now top $100 billion. That is a large sum for a firm that depends on nimble trades across the globe. Bridgewater specializes in macroeconomic investing, using computer-executed trades in dozens of currency, bond and stock markets.
  • Plan to Ease Way for Unions. Labor Board Proposes Speeding Up Organizing Votes; Employers, GOP Cry Foul.
  • Obama vs. ATMs: Why Technology Doesn't Destroy Jobs. Doing more with less is what economic growth is all about.
Fox Business:
  • Florida Governor Aims to Lure CME Group(CME) From Illinois. The governor of Florida on Tuesday appealed to CME Group Inc. (CME) to relocate its corporate base to the Sunshine State, responding to the exchange operator's vocal objections to a rise in the Illinois tax rate. "As CME Group continues to explore cost-saving options, I ask that you consider doing business in Florida," wrote Rick Scott, governor of Florida, in a letter addressed to CME Executive Chairman Terry Duffy. Duffy this month said that CME was looking into the possibility of shifting its corporate operations out of Illinois after the state in January increased its corporate tax rate from 4.8% to 7%, alongside a separate increase in the personal income tax rate. CME has estimated the tax increase could cost it $50 million per year. "Imagine the growth your company could achieve if you could reinvest those additional state taxes to hire more employees and expand operations," said Scott in a letter dated June 16.
  • China Growth to Cool as Credit, Trade Ebb: Duncan. China’s era of rapid economic growth is drawing to a close, with a great moderation now inevitable, according to economist and author Richard Duncan. Among reasons for the changes, he said, Beijing won’t be able crank up credit growth further without inflicting self-damage, nor is its export-led growth model viable as the taps tighten on worldwide easy money.
  • Look Ahead: Market to Dissect Fed's View of Economy. The Fed is expected to downgrade its view of the economy, but the question is: How confident will it be that the downturn is just temporary?
  • Adobe(ADBE) Beats Earnings Forecast but Outlook Disappoints. The company said it expects earnings of 50 to 56 cents a share for the fiscal third quarter and sees revenue of $1.05 billion. Analysts expected earnings of 54 cents a share on revenue of $1.02 billion. Adobe warned in March that sales would be cut in the quarter because of disruption after the earthquake and tsunami that struck Japan, which accounted for 13 percent of the company's sales last fiscal year. Still, the company said Tuesday it was standing by its target of 10 percent revenue growth for all of fiscal 2011, which ends in early December.
Business Insider:
  • Worldwide Chip Sales Projection Revised Upwards. The good news: semiconductor sales are looking healthy. Semiconductor sales will grow 5.4 percent to $314.4 billion in 2011, the World Semiconductor Trade Statistics organization reported Tuesday. In November, the group projected 2011 sales just 4.5 percent higher than in 2010. The group is predicting sales growth of 7.6 percent in 2012, 5.4 percent in 2013, and a compound annual growth rate of 6.13 percent from 2010 to 2013.
  • Lawmakers Set to Allow Speedier Arctic Drilling. The House is set to streamline regulations around Arctic drilling this week that would speed the development of oil and gas reserves off the Alaskan coast over the objections of environmentalists.
Seattle Times:
  • Offers Texas 5,000 Jobs in Exchange for Sales-Tax Exemption. The proposed offer circulating around Austin and obtained by The Dallas Morning News would let Amazon off the hook for collecting sales taxes from its Texas customers over the next 4 ½ years, and would bring 5,000 jobs to the state. The company also is promising to spend $300 million to open distribution centers where those employees would work.
Daily Tech:
  • Source: Apple(AAPL) to Enter TV Display Business Late This Year. Company is reportedly teaming up with a major OEM to sell iOS-powered, Apple-branded displays. Our source believed a fall launch was in order (potentially coinciding with the iPhone launch?), but the product could launch as late as next year, given Apple's "high standards".
The Hill:
  • China's Naval Harassment Cannot be Tolerated by Senator James Inhofe. Over the past twelve months, China has been carrying out calculated acts of naval harassment in the South China Sea. This is just the latest from Communist China, a country which -- for several years -- has declared much of the South China Sea as its exclusive economic zone. This has threatened the other countries (nine in all) of the region who have overlapping claims to the 1.35 million square miles of water.
Financial Times:
  • Warning on Bank Rules Reform. John Walsh, a top US bank regulator, warned his colleagues against imposing tougher regulations on financial groups, drawing a furious reaction from a Democratic senator who called for him to be replaced. Calling existing capital levels “extraordinarily high” and proposing a “fundamental rethink” of international liquidity standards, Mr Walsh, acting comptroller of the currency, said: “My view is that we are in danger of trying to squeeze too much risk and complexity out of banking as we institute reforms to address problems and abuses stemming from the last crisis.”
Financial Times Deutschland:
  • German Chancellor Angela Merkel has agreed to cutting taxes for average-income earners before the next national election in 2013, giving in to calls from her junior coalition partner, the Free Democrats.

Yonhap News:
  • North Korean heir-apparent Kim Jong Un's leadership position was hurt by policy failures including a botched currency reform, citing Won Sei Hoon, head of South Korea's National Intelligence Service.
Herald Business:
  • South Korea's government may raise its consumer price inflation forecast to the 4% range from a 3% level, and trim its economic growth target to a 4% range from 5%. The government will announce the new forecasts on June 30.
Securities Times:
  • The sale of land in Beijing has declined 75.4% so far this year to 12 billion yuan, citing Centaline Property Agency Ltd.
South China Morning Post:
  • China's Rail Titans Bid for U.S. High-Speed Project. A consortium of Chinese companies hopes to win contract to design, build, supply and operate major line in California.
  • Shanghai International Port Co. will slow its pace of investment in ports, terminals and related infrastructure along the Yangtze River after a spending boom in the past few years, citing a company official.
21st Century Business Herald:
  • China should raise interest rates to reduce inflation expectations, citing Zhu Baoliang, a chief economist for the State Information Center under the National Development and Reform Commission.
National Business Daily:
  • China needs to raise deposit interest rates by 300 basis points as soon as possible to stabilize inflation, independent economist Andy Xie said. The central bank is likely to increase interest rates 25 basis points in June or July, insufficient to stop an inflation of more than 5% from cutting into real savings, Xie said in an interview. High property prices have become a heavy burden on the Chinese and the country needs to lower average property prices by 50%, Xie said.
Evening Recommendations
  • Reiterated Buy on (CCL), boosted estimates, target $49.
Night Trading
  • Asian equity indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 113.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 116.25 -2.75 basis points.
  • S&P 500 futures -.19%.
  • NASDAQ 100 futures -.29%.
Morning Preview Links

Earnings of Note
  • (KMX)/.47
  • (RBN)/.53
  • (FDX)/1.72
  • (BBBY)/.62
  • (PAYX)/.33
  • (SCS)/.04
  • (IHS)/.87
  • (RHT)/.22
Economic Releases
10:00 am EST
  • The House Price Index for April is estimated to fall by -.3% versus a -.3% decline in March.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,825,000 barrels versus a -3,406,000 barrel decline the prior week. Distillate supplies are expected to rise by +550,000 barrels versus a -105,000 barrel decline the prior week. Gasoline inventories are estimated to rise by +1,000,000 barrels versus a +573,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -1.1% decline the prior week.
12:30 pm EST
  • The FOMC is expected to leave the benchmark fed funds rate at .25%.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • Fed Chairman Bernanke's press conference, the weekly MBA mortgage applications report, Wells Fargo Healthcare Conference, BMO Capital Pipeline/Utilities Conference, (PX) investor day, (ST) investor day and the (AER) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

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