Thursday, October 29, 2009
Stocks Surging into Final Hour on Less Economic Fear, Diminishing Financial Sector Pessimism, Bargain-Hunting
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs, Retail longs and Financial longs. I covered all my (IWM)/(QQQQ) hedges, added to my (DISCA) long and covered some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is about average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -11.29% and is high at 24.76. The ISE Sentiment Index is below average at 115.0 and the total put/call is slightly above average at .87. Finally, the NYSE Arms has been running below average most of the day, hitting .45 at its intraday trough, and is currently .57. The Euro Financial Sector Credit Default Swap Index is falling -1.23% today to 65.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling -1.84% to 104.52 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising +1 basis point to 23 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +4.68% to 33.44 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +7 basis points to 2.04%, which is down 61 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is down -1 basis point today. Cyclical shares are rebounding, with the MS Cyclical Index jumping 3.73%. (XLF)/(IYR) have traded very well throughout the day, as well. The bond market’s reaction to positive economic data, more supply and an end to Treasury purchases is rather muted, which is a big positive. REIT, Homebuilding, Construction, Insurance, HMO, Hospital, Bank, Paper, Steel, Gold, Oil Tanker, Alt Energy and Coal stocks are especially strong, surging 4%+ on the day. The AAII % Bulls fell to 33.65% this week, while the % Bears rose to 42.31%. I continue to believe overall investor sentiment remains subdued-to-bearish, which is a big positive. Asian shares should follow US stocks higher tonight and economic data tomorrow should be ok, which may lead to further stock gains on the last day of the 3rd quarter. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +25 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less economic fear, diminishing financial sector pessimism and investment manager performance anxiety.
Today's Headlines
Bloomberg:
- The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars. The world’s largest economy expanded at a 3.5 percent pace from July through September, figures from the Commerce Department showed today in Washington. Household purchases climbed 3.4 percent, the most in two years. Policy makers will now focus on whether the recovery, supported by government spending and tax credits, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit means President Barack Obama has little room for maneuver as he tries to keep unemployment from rising above 10 percent, while Federal Reserve policy makers wind down emergency programs in a bid to prevent a surge in inflation.
- Why the Goldman Sachs(GS)-AIG Story Won’t Go Away. How did so much taxpayer money end up in the coffers of American International Group Inc.’s too- big-to-fail customers? The more we find out, the more it becomes obvious we still don’t know the half of it. It’s the story that won’t go away: Was last year’s federal rescue of AIG a back-door bailout for the likes of Goldman Sachs Group Inc., Societe Generale SA, Deutsche Bank AG, Merrill Lynch & Co. and other large banks? To believe AIG’s disclosures, you’d have thought its executives decided on their own last year to pay 100 cents on the dollar to the various banks that had bought $62 billion of credit-default swaps from the company. Now, thanks to an Oct. 27 story by Bloomberg News reporters Richard Teitelbaum and Hugh Son, we know otherwise. It turns out the decision to make the banks whole wasn’t AIG’s. It was made by the Federal Reserve Bank of New York, back when its president was the current U.S. Treasury secretary, Timothy Geithner, and its chairman was Goldman Sachs director Stephen Friedman. (Friedman resigned from the New York Fed in May, after the Wall Street Journal reported he had bought more than 50,000 shares of Goldman stock following AIG’s takeover.) Before AIG was seized, its executives had been negotiating for months with the banks, trying to get them to accept discounts of as much as 40 cents on the dollar, Bloomberg reported, citing people familiar with the matter. Then, late in the week of Nov. 3, the New York Fed took over the negotiations with the banks from AIG, together with the Treasury Department (at the time run by former Goldman boss Henry Paulson) and Chairman Ben Bernanke’s Federal Reserve Board. Less than a week later, the New York Fed instructed AIG to pay the counterparties in full, Bloomberg reported. Judging by the result, you might think Geithner’s team was on the banks’ side, rather than AIG’s. But why the rush to pay the banks in full once Geithner’s team took over the talks? The public has never gotten satisfactory answers, notwithstanding that the government’s commitment to AIG now stands at about $182 billion. In a story published yesterday in response to Bloomberg’s scoop, the New York Fed’s general counsel, Thomas Baxter, told the Washington Post that officials were racing to prevent AIG’s collapse and didn’t have time for protracted negotiations with each creditor. That won’t put to rest suspicions that regulators used AIG as a slush fund to shield some of the banks from losses, using taxpayer money. Nor has anyone from AIG or the government explained why there was such a hurry to buy the CDOs. While the banks supposedly received market prices, that deal has since turned sour for taxpayers. The value of the securities, now held by a Fed-run entity called Maiden Lane III, was down by about $7 billion as of June 30, according to the New York Fed. The public might get some answers soon. Next month, the inspector general for the government’s Troubled Asset Relief Program, Neil Barofsky, is scheduled to release a report on whether AIG overpaid the banks, and the extent to which the counterparties’ own financial problems may have been at issue.
- Deflation remains a threat to the euro-area economy and a greater risk in some countries, presenting a “headache” for the European Central Bank over when to tighten policy, according to Capital Economics Ltd. While ECB President Jean-Claude Trichet said Oct. 1 that there has been “no materialization of deflationary risks” in the 16-nation economy, Capital’s European economist Ben May said in a report late yesterday that spare capacity leaves the region in jeopardy of a “prolonged and damaging period of falling prices.”
- The number of Americans collecting unemployment insurance fell more than forecast to the lowest level in seven months, a government report showed. The number of people receiving jobless benefits declined by 148,000 to 5.8 million in the week ended Oct. 17, the lowest since March 21 and biggest weekly drop since July, Labor Department figures showed today in Washington. Initial jobless claims fell by 1,000 to 530,000 in the week ended Oct. 24, from 531,000 the prior week. The four-week moving average of initial claims, a less volatile measure, declined to 526,250 last week, the lowest level since January, from 532,250. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 4.4 percent in the week ended Oct. 17, from 4.5 percent the prior week.
- Crude oil rose the most in a month after the U.S. economy grew in the third quarter for the first time in more than a year, spurring optimism that fuel demand will increase. U.S. fuel consumption dropped 0.8 percent to an average of 18.5 million barrels a day last week, yesterday’s report showed. Gasoline demand fell 1 percent to 8.86 million barrels a day.
- Cooper Tire & Rubber Co. is paying tariffs on imported tires. Free-trade agreements sought by Caterpillar Inc. and Wal-Mart Stores Inc. are on hold. Delta Air Lines flight attendants may join a union. There’s a common thread running through these developments. Organized labor is gaining momentum under the Democratic administration of President Barack Obama. Though reaching their most-publicized goals -- legislation making it easier to organize and a government-run health insurance program -- remains in doubt, unions are making other gains through executive orders, rule changes and appointments. More advances may be ahead as regulatory nominees are confirmed. “You absolutely know something is going to happen to you, you just don’t know when,” said Michael Lotito, a San Francisco attorney at Jackson Lewis LLP who handles labor issues for companies. “There is going to be a flurry of labor action down the pike.”
- Federal Deposit Insurance Corp. Chairman Sheila Bair, breaking with the Obama administration, said U.S. financial companies should prepay into a fund the government would use to unwind large failed firms. Congress should set up a Financial Company Resolution Fund and force institutions with more than $10 billion of assets to pay before a firm collapses, Bair said in testimony prepared for a House Financial Services Committee hearing today. Investors in failed companies also should take losses, she said.
Wall Street Journal:
- U.S. lawmakers and the regulators who will oversee the nation's financial-services industry split Thursday on key portions of the Obama administration's proposal to monitor and avert financial crises, highlighting the thorny issues that could slow progress on regulatory overhaul efforts. A draft proposal to deal with "too big to fail" firms unveiled by the Treasury Department and Rep. Barney Frank (D., Mass.) earlier this week received a sharp response at a key hearing on Capitol Hill. The Federal Reserve gave the measure a vote of confidence, but the Federal Deposit Insurance Corp. and lawmakers on both sides of the aisle on the House Financial Services Committee expressed unease or outright opposition about the broad new authorities envisioned to oversee financial markets.
Forbes:
- For more than six months, HTC enjoyed the privilege of being the only cellphone maker to have a handset running on Google's mobile platform, Android. Several manufacturers, including Samsung, Motorola (MOT) and LG have since crowded in. Motorola, which announced a new Android phone with Verizon( VZ) Wireless on Oct. 28, is forging particularly close ties with Google( GOOG).
CNNMoney:
Rassmussen:
- Most voters think the news media has too much power over their elected representatives in Washington and the decisions they make. It’s yet another finding that highlights the distance voters see between themselves and their government. A new Rasmussen Reports national telephone survey finds that 62% believe that what the media thinks is more important to the average member of Congress than what voters think. Just 27% say what voters think is more important to the average congressman.
Politico:
- House Speaker Nancy Pelosi unveiled a $894 billion health care bill Thursday that would extend coverage to 36 million Americans through a mix of subsidies, tax incentives and penalties on individuals and small businesses, but the final package falls short of the more liberal vision of a public health insurance option. Party leaders would like to start debate on the bill next week and hope to have a final vote before Veteran's Day on Nov. 11. The long-awaited introduction of a combined House health care bill that totals 1,990 pages produced few major surprises. After weeks of public hand-wringing, leaders – and party liberals – bowed to political reality by allowing doctors and hospitals to negotiate their rates with the government under the public plans.
- One of President Barack Obama’s key political advisers has become the central strategist in New Jersey Gov. Jon Corzine’s bruising campaign for re-election, a race the White House desperately wants to win to avert the consequences for its own agenda of a Republican winning in a traditionally Democratic state. The White House was so concerned about Corzine's chances during the summer that Corzine's aides feared the first-term governor was being pressured to step aside for a stronger candidate. Those fears turned out to be groundless, but were part of the reason Corzine hired Joel Benenson, who has helped impose discipline on a struggling campaign and crystallize Corzine’s aggressive attacks on the character of his Republican opponent, former U.S. Attorney Chris Christie. The race is seen as extremely close, complicated by the presence of a third candidate, Chris Daggett. For the White House, it’s a crucial symbolic prize. With Democrat Creigh Deeds running far behind his Republican rival in Virginia, the New Jersey race – once believed to be hopeless for Corzine – is now seen as the White House’s best bet to make the 2009 election cycle a political wash and to calm the nerves of congressional Democrats approaching the crucial 2010 midterm elections.
USA Today:
- More than 40% of President Obama's top-level fundraisers have secured posts in his administration, from key executive branch jobs to diplomatic postings in countries such as France, Spain and the Bahamas, a USA TODAY analysis finds. Twenty of the 47 fundraisers that Obama's campaign identified as collecting more than $500,000 have been named to government positions, the analysis found. Overall, about 600 individuals and couples raised money from their friends, family members and business associates to help fund Obama's presidential campaign. USA TODAY's analysis found that 54 have been named to government positions, ranging from Cabinet and White House posts to advisory roles, such as serving on the economic recovery board charged with helping guide the country out of recession. Nearly a year after he was elected on a pledge to change business-as-usual in Washington, Obama also has taken a cue from his predecessors and appointed fundraisers to coveted ambassadorships, drawing protests from groups representing career diplomats. A separate analysis by the American Foreign Service Association, the diplomats' union, found that more than half of the ambassadors named by Obama so far are political appointees, said Susan Johnson, president of the association. That's a rate higher than any president in more than four decades, the group's data show. Ambassadors earn $153,200 to $162,900 annually. "It is time to end the spoils system and the de facto sale of ambassadorships," Johnson said. "The United States is best served by having experienced, knowledgeable and trained career officers fill all positions in our diplomatic service."
Reuters:
- Iraq's Oil Ministry said on Thursday that it will sign a final deal on November 3 with BP (BP) and China's CNPC to develop its biggest oilfield, Rumaila, the nation's first major oil pact since the U.S. invasion in 2003. The ministry will also sign an initial deal on November 2 with Italy's Eni Spa over the Zubair oilfield, Oil Ministry spokesman Asim Jihad said. Both deals involve supergiant oilfields and a promise of increased production that could catapult Iraq up to the top ranks of the league of oil producing nations. Iraq's oil infrastructure is dilapidated after years of war, sanctions and underinvestment, and while it has the world's third largest reserves, it is only the 11th largest producer. The country hopes foreign investment will help it move up to third place with oil output of around 7 million barrels per day (bpd) -- triple current production of around 2.5 million bpd -- within six or seven years. Rumaila, with estimated reserves of 17 billion barrels, is the workhorse of Iraq's oil sector, producing almost half of the country's total daily output.
The Australian:
- BHP Billiton chief executive Marius Kloppers sees signs of a ``pullback'' in demand as China finishes rebuilding its inventories of raw materials. ``China has been the major and sometimes only source of demand for commodities in the second half of 2009,'' he said in a speech overnight at the London annual general meeting of the world's largest mining company. ``Restocking in China is now essentially complete and we are seeing signs of a pullback in demand.'' ``We ... believe it won't be until mid-2010 before we see clean underlying demand that is not masked by inventory effects,'' he said.
Digitimes:
- The current shortage in the supply of LED chips is expected to continue in the first quarter of 2010 due to significant demand for LED backlighting from the LCD TV and notebook segments, according to industry players. LED chipmaker Epistar revealed that its order visibility has extended to December, even though demand for LED-backlit LCD TVs is expected to slow down in that month amid off-season effects. In addition, ASP (average selling price) of LED-backlight units for LCD TV and notebook applications will also remain steady in 2010 thanks to strong demand, Epistar said.
Bear Radar
Style Underperformer:
Large-Cap Growth (+1.40%)
Sector Underperformers:
Education (-2.39%), Drugs (+.30%) and Medical Equipment (+.40%)
Stocks Falling on Unusual Volume:
GT, APOL, COCO, BW, USMO, GLBC, MDAS, FSLR, ACLI, GTIV, USMO, XRAY, FDML, LHCG, VPRT, KSP and POR
Stocks With Unusual Put Option Activity:
1) RDC 2) AVP 3) GT 4) ODP 5) WFT
Bull Radar
Style Outperformer:
Small-Cap Value (+2.34%)
Sector Outperformers:
Steel (+5.82%), Hospitals (+4.52%) and Homebuilders (+4.15%)
Stocks Rising on Unusual Volume:
LNC, VIP, ING, MBT, CLF, AA, DB, BCS, PBR, SU, SFLY, CTB, SWSI, AAWW, FIRE, AMAG, PSYS, TLVT, ITRI, CERN, ASIA, AKAM, AMSC, ODSY, PNRA, TTEC, PTEN, ORLY, IDCC, ACXM, BRKR, AIXG, DTG, CRR, KDN, PZJ, JAH, RZV, MTA, PZD, HBI, IJT, TBL and RNE
Stocks With Unusual Call Option Activity:
1) GT 2) MOT 3) UWM 4) ATI 5) SNDA
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Late-Night Headlines
Bloomberg:
- Massachusetts Governor Deval Patrick said
- An eight-month, 68 percent rally in global stocks failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system. Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch. “The doubt and the pessimism just won’t go away,” says James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in
- A Federal Bureau of Investigation money-laundering sting targeting two financial professionals in Florida and Nebraska is tied to an international probe of German hedge-fund firm K1 Group, people familiar with the matter said. K1 Group, a firm that invests in other hedge funds, is embroiled in an international inquiry after saddling lenders including Barclays Plc, JPMorgan Chase & Co., BNP Paribas SA and Societe Generale SA with about $400 million in losses, people familiar with the matter said before Seuss’s case became public. Prosecutors in
- A
- Southern Copper Corp.(PCU), which holds the world’s second-largest reserves of the metal, can “easily” double annual output to more than 1 million metric tons, Chief Executive Officer Oscar Gonzalez Rocha said. Southern, which expects to produce 500,000 metric tons this year, plans to raise output 70 percent at its Peruvian mines by 2012, Gonzalez said. It may increase production further if parent company Grupo Mexico SAB regains control of
- Traders bought December $70 put options in electronic trading on the New York Mercantile Exchange today, as the underlying futures dropped the most in more than a month. The December $70 puts, or bets that prices will fall below that level, rose 21 cents to 70 cents a barrel, or $700 a contract, at 3:53 p.m. in
- President Barack Obama plans to sign legislation today adding gays to the list of groups covered by the federal hate-crime law, the biggest expansion of such protections in decades. Obama will sign a defense policy and funding measure that includes the provision and, according to a White House statement.
- Senate Democrats plan to extend an $8,000 tax credit for first-time homebuyers and allow benefits for some people who already own residences, a spokeswoman for Majority Leader Harry Reid said.
- Secretary of State Hillary Clinton’s arrival in
- A U.S. effort to pressure Iran into nuclear concessions by curbing gasoline imports may have little impact because the United Arab Emirates and other countries are willing to keep shipping fuel to the Islamic Republic. About $2.8 billion worth of gasoline passes through the U.A.E. to
Wall Street Journal:
- Democratic enthusiasm for President Barack Obama's liberal domestic agenda—particularly for a government-run health insurance program—could wane after the results of the gubernatorial elections next Tuesday in Virginia and New Jersey. GOP victories in either state will tell Democrats in red states and districts that support for Obama's policies is risky to their political health. The more significant is the open race for governor in
- Beleaguered high-end retailer Saks Inc. is testing online "private event" sales of discounted designer goods, in a bid to compete with discount Web retailers that are gaining popularity in the U.S. in the recession. Saks on Tuesday launched a 36-hour sale, dubbed Fashion Fix, open only to those who received emails from Saks directing them to the site. "Today, the rush begins," read the email sent to a large number of Saks.com customers on Tuesday.
- After shelling out billions of dollars to Wall Street banks last year on souring trades, American International Group Inc. has gotten some of that money back, thanks to a turnaround in the very securities that helped level the insurer. Billions of dollars have flowed from banks into AIG coffers in recent months, according to people familiar with the matter. For the second quarter, the figure may have topped $3 billion, public filings suggest.
- The Federal Trade Commission would get new powers to oversee and punish companies that run afoul of its rules as part of a financial-services oversight bill currently before Congress, a further step in the Obama administration's beefing up of the U.S. regulatory machinery. The provision, which has reached this point virtually unnoticed by all but a few lobbyists and interest groups, will be debated in the House Energy and Commerce Committee Thursday. The legislation, if approved, would strengthen the FTC by allowing the agency to craft regulations more quickly and enhance its ability to impose civil penalties on companies. It would also allow the agency to take action against companies "aiding and abetting" unfair or deceptive business practices, not just the original perpetrator, according to people familiar with the legislation.
- If you're an elected Democrat anywhere to the right of Barney Frank, and trying to defend a competitive seat next November, you've got to be starting to sweat. You wake up in the morning and just like every other morning as far as the eye can see the only thing in the news is the president's health-care reform. It's starting to look like Harry Reid and Nancy Pelosi are leading the Donner Party, the snowbound emigrants who bogged down in the
- Montana Rep. Denny Rehberg was no fan of the $58 billion federal rescue of General Motors Co., saying he worried taxpayer money would be wasted and the restructuring process would be vulnerable to "political pressure." Now the lawmaker says it's his "patriotic duty" to wade into GM's affairs. Along with Montana's two Democratic senators, the Republican congressman is battling to get GM to reinstate a contract with a Montana palladium mine nullified in bankruptcy court. "The simple fact is, when GM took federal dollars, they lost some of their autonomy," Mr. Rehberg says.
- It's hard not to laugh when viewing the results of the federal first-time home-buyer tax credit. The credit, worth up to $8,000 for the purchase of a home, has only been available since April of last year. Yet news of the latest taxpayer-funded mortgage scam has traveled fast. The Treasury's inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn't purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren't first-time buyers.
Barron’s:
- IF YOU THINK THE GLOBAL ECONOMIC RECOVERY is underway, it could be smart to buy shares of companies with established brands like Coca-Cola (ticker: KO). That may be what Barry Diller, a high-profile director at the beverage giant, was thinking this week when he bought $27.6 million in shares. Diller bought 510,000 shares at an average price of $54.03 each on Oct. 26, more than doubling his holdings.
CNBC.com:
- We know what you’re thinking, the market needs a weak dollar to go higher. Well maybe not. The wisdom in the market right now is that a weak dollar provides a tailwind for stocks. At the risk of sounding like a broken record that’s largely because it drives commodity prices higher. Then, energy shares and natural resource names follow along. It also benefits multi-nationals as they repatriate profits back into dollars. (They get more dollars for every euro, etc.) Well, maybe it’s time for the wind to change direction – or to re-think that wisdom. Gary Kaminsky, the former Neuberger Berman managing director says “a stronger dollar does not equal a weaker market.” And he’s far from alone. In fact, Bespoke research shows that equities do better when the dollar rallies. During the last 5 dollar bull markets the average return on the S&P was 59%. That’s largely because the stronger dollar signals strength in the
- The hopeful mood that accompanied the start of President Obama's term has given way to deepening concern about the nation’s economic troubles, according to a new NBC News/Wall Street Journal poll. In the survey, a 52 percent majority of Americans described the nation as headed "off on the wrong track," compared to 36 percent who said the U.S. is "headed in the right direction." Though Obama's overall approval rating remained unchanged at 51 percent, assessments of Obama's handling of the economy have declined. Some 47 percent approve his economic stewardship, down from 50 percent in September, while 46 percent disapprove, up from 42 percent in September.
CNNMoney.com:
Newsweek:
- The foreclosure crisis may be coming to a middle-class neighborhood near you. As joblessness continues to rise and as a person's unemployment lasts on average 6.5 months, roughly 3.4 million homes are expected to go into foreclosure by the end of 2009. That's up from 1.2 million homes in 2007, according to RealtyTrac, a subscription-based site that tracks foreclosures nationwide. "We're not out of the woods yet," says Rick Sharga, RealtyTrac's senior vice president. Sharga recently spoke to NEWSWEEK's Nancy Cook about the various waves of the foreclosure crisis, the future of homeownership and why the Obama administration’s loan-modification program won't stem this latest crop of foreclosures. Excerpts:
Seattlepi.com:
- Boeing(BA) has decided to put its second line for building the 787 in North Charleston, S.C., not Everett. "The decision has been reached," Snohomish County Executive Aaron Reardon told reporters in front of the Everett Machinists Hall.
Politico:
- One of the 20 finalists in health care video contest run by Barack Obama’s campaign arm features a mural of an
- The leader of what federal authorities describe as a fundamentalist group was shot and killed today during a series of raids in
Reuters:
- Two-thirds of U.S. adults plan to spend less this holiday season and 6 percent say they still are carrying debt from last year's holiday purchases, according a new Consumer Reports Holiday Shopping Poll released on Thursday. As recession lingers on
Financial Times:
- Morgan Stanley(MS) has been dragged into a risky Chinese court battle over a hedging contract with a local company in the latest stand-off between foreign investment banks and mainland enterprises over loss-making derivatives deals. The case comes at a sensitive time for global banks, with
- The Galleon hedge fund at the centre of an insider trading scandal paid hundreds of millions of dollars a year to its Wall Street banks and in return regularly received market information that would not have been disclosed to most investors, executives familiar with the matter say. A person familiar with Galleon, whose founder, Raj Rajaratnam, was charged with insider trading this month, said it paid about $250m to its banks last year. Executives who dealt with the fund said it paid more in fees and other charges during the boom years of this decade. Morgan Stanley(MS), which counted Galleon as one of its top-five hedge fund clients, and Goldman Sachs(GS) were Galleon’s top providers of hedge-fund services – or prime brokerage. Galleon, which had about $7bn in assets at its peak, paid large amounts to banks because it specialized in short-term trading strategies, which put its officials in close contact with Wall Street traders and salespeople. As it grew, the hedge fund became known for pushing its contacts at banks for hints about market developments such as big buy and sell orders. Although bank policies often prohibit employees from divulging specific information about orders, executives who dealt with Galleon said it regularly received “color” on market developments, frequently delivered in Wall Street slang. One example would be traders discussing a “page one seller” of shares – a reference to the first page of the Bloomberg list of top holders of listed companies. One executive who dealt with Galleon said: “They wanted anything the public did not have. They got various pieces and put them together and that was their edge.” A former Goldman executive who provided services to funds including Galleon said: “They were tough and aggressive. They cared about short-term returns and cared a lot about the impact of their trading and the costs. They expected a lot of market information.” Market participants say the Galleon case could have a chilling effect on the distribution of market “color” – possibly affecting other hedge funds that trade frequently to make quick returns. “High-velocity hedge funds aren’t really about investing,” said one hedge fund founder. “It is a cat and mouse kind of thing, a game.” Goldman, Morgan Stanley and a Galleon representative declined to comment.
- China is preparing to launch a trade investigation into whether US carmakers are being unfairly subsidized by the US government, according to people familiar with the matter. The move comes at a time of heightened trade tensions between the two countries after the
Late Buy/Sell Recommendations
Citigroup:
- Raised (VIA/B) to Buy, boosted target to $32.
- Reiterated Buy on (BWA), target $36.
Night Trading
Asian Indices are -2.75% to -1.25% on average.
Asia Ex-Japan Inv Grade CDS Index 121.50 +9.0 basis points.
S&P 500 futures +.15%.
NASDAQ 100 futures +.09%.
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Earnings of Note
Company/EPS Estimate
- (AGN)//.69
- (WMB)/.19
- (AMSC)/.05
- (TDW)/1.37
- (PG)/.98
- (XOM)/1.02
- (PTEN)/-.16
- (STRA)/1.15
- (BKC)/.37
- (UTHR)/.27
- (CL)/1.11
- (NEM)/.55
- (CME)/3.29
- (EXPE)/.42
- (AET)/.66
- (MOT)/.00
- (S)/-.11
- (EK)/-.19
- (K)/.85
- (APA)/1.61
- (MWW)/.00
- (MXIM)/.14
- (MFE)/.60
- (BMC)/.58
- (MET)/.86
- (LVS)/.00
- (ODP)/-.10
Economic Releases
8:30 am EST
- Advance 3Q GDP is estimated to rise +3.2% versus a -.7% decline in 2Q.
- Advance 3Q Personal Consumption is estimated to rise +3.1% versus a -.9% decline in 2Q.
- Advance 3Q GDP Price Index is estimated to rise +1.14% versus unch. in 2Q.
- Advance 3Q Core PCE is estimated to rise +1.4% versus a +2.0% gain in 2Q.
- Initial Jobless Claims for last week are estimated to fall to 523K versus 531K the prior week.
- Continuing Claims are estimated to fall to 5905K versus 5923K prior.
Upcoming Splits
- None of Note
Other Potential Market Movers
- Geithner’s testimony before the House on regulation, the weekly EIA natural gas inventory report, Treasury’s 7-Year Note Auction, (AVP) analyst meeting and the (JNPR) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and real estate shares in the region. I expect
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