Thursday, September 30, 2010

Friday Watch


Evening Headlines

Bloomberg:

  • BankUnited's CEO Kansas Says U.S. May Lose a Third of Its Banks. The U.S. may lose about a third of its banks as the weakening economy weeds out the least healthy institutions, said John Kanas, chief executive officer of BankUnited.
  • Cigna, Restaurants Seek Low-Wage Health-Plan Waivers. U.S. restaurants have asked the federal government to waive health overhaul rules that may force companies to abandon low-cost “mini-med” plans that insure 1.4 million minimum-wage and part-time employees. Cigna Corp., the Philadelphia-based health insurer, has also asked for a waiver on behalf of its “limited-benefit” customers, and expects to hear back soon from federal officials, Gloria Barone Rosario, a spokeswoman, said today in an e-mail.
  • Why Debtholders Need to Get Ready for a Haircut: Peter Coy. There is no end in sight to Ireland’s debt crisis, but here’s one thing we know: The Irish will not get kicked out of their own country. No matter how many multiples of the nation’s gross domestic product are owed to German and U.K. banks, sovereign foreclosure isn’t an option. In most other respects, though, the state of Ireland is similar to the predicament that one in five American homeowners with mortgages find themselves in -- owing more than their property is worth, so burdened with debt that the economy is stalled by their inability to borrow and spend as they used to.
  • Post-Enron Audit Watchdog Shows Consumer Bureau What to Avoid, Turner Says. In 2002, Congress sought to make sure publicly traded companies couldn’t deceive investors the way Enron Corp. did. So it created a watchdog to monitor the accountants that audit the corporations and gave it a gawky name: the Public Company Accounting Oversight Board. In eight years the board has brought 32 disciplinary cases, only one of which was against one of the so-called big four accounting firms. It has also approved six standards governing how auditors must do their work. Eight others adopted in August await Securities and Exchange Commission sign-off. Some of the board’s advocates find that slender record underwhelming, Bloomberg Businessweek reports in its Oct. 4 issue. “They need to be more forceful in setting the audit standards, and even more importantly, they need to be more forceful in enforcement,” says Edward Ketz, an accounting professor at Pennsylvania State University. “It just doesn’t seem they are doing enough.”
  • Arahura in Funding Talks for $964 Million Rare Earths Project. Arafura Resources Ltd. is in talks to raise funds for its A$1 billion ($964 million) rare earth project in Australia after China capped exports of the metals used in hybrid cars and laptops this year and prices soared. “With the outlook of the market, the robustness of the project, we have every chance of raising the money,” Chief Executive Officer Steve Ward said in an interview in Perth. “The money will come from a combination of sources from all over the globe. It will come from debt, equity, maybe some financial instruments, and maybe some involvement with some customers and some raw-material suppliers.” China, which controls more than 90 percent of the global market of the metallic elements, in July reduced export quotas for the rest of the year by 72 percent, sending prices up as much as ninefold.
  • Geithner Says No Threat of China Trade War or Currency Wars. U.S. Treasury Secretary Timothy F. Geithner today said he was confident tensions over China’s currency, the yuan, won’t lead to escalating trade sanctions or feed into a broader global currency conflict. “We’re not going to have a trade war,” Geithner said in remarks to a Washington conference hosted by The Atlantic magazine and the Aspen Institute.
  • Mexico Files Support of U.S. Court Order Blocking Arizona Illegal Immigration Law. Mexico said it supports a U.S. court ruling that blocks the central provisions of an Arizona law requiring police to determine the immigration status of people stopped for questioning. Lawyers for Mexico told the U.S. Court of Appeals in San Francisco in a court filing today that the law interferes with its relations with the U.S. and encourages “an imminent threat of state-sanctioned bias or discrimination.” Nine Latin American countries including Argentina, Brazil, Bolivia, Costa Rica, Nicaragua and Peru asked for permission to join Mexico’s request that the appeals court uphold the lower- court’s ruling that Arizona can’t require police to try to determine if someone is legally in the U.S. and then detain that person if they suspect he isn’t. “Mexico seeks to ensure that its citizens present in the U.S. are accorded the human and civil rights granted under the U.S. Constitution,” Mexico said in its filing. For the almost 20 million Mexican workers, tourists and students admitted to the U.S. and those already in the country, the Arizona law “adversely impacts U.S.-Mexico bilateral relations, Mexican citizens and other people of Latin-American descent present in Arizona,” according to the filing.
  • Correa Claims Ecuador Coup Attempt After Scuffling With Police. Ecuador declared a state of emergency as hundreds of police protesting wage cuts blocked roads, shut the airport for several hours and sprayed teargas on President Rafael Correa.
  • Roubini Says 2008 Bank Mergers Created 'Too Bigger to Fail' Risk for U.S. “The ‘too big to fail’ problem has become an even too bigger to fail” problem, Roubini said today at the Bloomberg Dealmakers Summit in New York. “That is what happens when you do mergers that don’t make any sense.” The federal government rescued institutions whose potential collapse could have disrupted the financial system in 2008, including mortgage lender Fannie Mae and insurer American International Group Inc. JPMorgan Chase & Co. acquired the brokerage Bear Stearns Cos. and assets of Washington Mutual Inc. in 2008 after the two companies suffered market routs and regulators stepped in. Bank of America Corp. bought brokerage Merrill Lynch & Co. and mortgage lender Countrywide Financial Corp.
  • California Man Charged in $225 Million 'Scratch and Dent' Property Scheme. A California businessman was charged with fraud and money laundering in what prosecutors said was a $225 million Ponzi scheme that solicited investments in rehabilitated “scratch and dent” real estate. Bruce Fred Friedman, 60, the owner of Sherman Oaks, California-based Diversified Lending Group Inc., was arrested Sept. 13 in Cannes, France, U.S. Attorney Andre Birotte Jr. in Los Angeles said today in a statement. He faces a prison sentence of as long as 360 years if convicted on all 23 counts that he’s charged with, according to the statement.

Wall Street Journal:
  • Irish Crisis Shakes Europe. Dublin to Spend Billions More to Shore Up Lenders; Jitters Over Euro's Future. Ireland scrambled to contain its financial crisis—and convince investors it won't need an emergency bailout by its European peers—by promising to pump billions more into its hardest-hit lenders. The move, coming after efforts two years ago to rescue the troubled banks, underscores Ireland's new and unwanted status as the center of Europe's continuing financial turmoil. The convulsions in Dublin are adding to concerns that Ireland and other stricken nations may need to tap a rescue mechanism for euro-zone members that was cobbled together to save Greece this spring. The Irish government said Thursday that the total cost of fixing its banks, battered by an epic housing bust, could in the worst case total as much as €50 billion ($68 billion), or about a third of the country's economic output last year. That's much higher than the government's previous commitment of a total of €33 billion for the bailout. As a result of its bank rescues, Ireland's budget deficit will rise to 32% of its economic output this year—roughly 10 times the European Union limit and the biggest in the euro zone's 11-year history. Ireland is betting it can show that it has fully absorbed its banks' problems and that the worst is over. But more trouble may loom. The government has already mounted one of the toughest budget-cutting programs in Europe, but it will now likely make even deeper cuts in its new budget in November. If the new cuts further stifle the economy, concern will build that Ireland—like Greece—will one day need to seek financial assistance from the rescue fund established earlier this year by the EU and the International Monetary Fund. Similar fears are building in Spain and Portugal, where concerns about government debt are mounting. Investors are also nervous about Portugal, fearing that political wrangling there could prevent the country from cutting its own debts. On Thursday, ratings company Moody's Investors Service downgraded Spain's top-notch triple-A rating to Aa1, citing its weak growth prospects and deteriorating finances. Ireland's lingering woes offer a cautionary tale of how difficult it will be for Europe's weaker economies to cut their debts while coping with economic stagnation and high unemployment. Following weeks of relative calm in Europe, the flaring of Ireland's crisis has put European officials back on the defensive, renewing questions about the long-term viability of the 16-nation euro zone. Ireland's troubles also highlight the difficulty the European Central Bank faces in setting a single monetary policy for a region of starkly different economic fortunes. Ireland, Portugal, Spain and Greece appear to be slipping deeper into economic malaise, while Germany and other northern European countries are recovering. If this divide continues to grow, as a number of economists predict, ECB officials will face uncomfortable questions about whose interests they are putting first. Making things worse, Ireland's economy unexpectedly shrank almost 5%, on an annualized basis, in the second quarter, after emerging from recession earlier this year. A weak economy—or worse, a "double-dip" recession— will make it harder to generate tax revenue and pay down debt.
  • Icahn Gains Leverage to Press Merger of MGM, Lions Gate. Billionaire investor Carl Icahn bought a significant chunk of Metro-Goldwyn-Mayer Inc.'s debt and is pushing the beleaguered film studio to merge with rival Lions Gate Entertainment Corp., said people familiar with the matter.
  • Gymboree(GYMB) Solicits Potential Buyers. Children's clothing retailer Gymboree Corp. is exploring the possibility of a sale to private equity firms, people familiar with the matter said.
  • Massey Bashes Mine Regulator. Massey Energy Co. said federal mine safety officials insisted on ventilation changes that cut the flow of fresh air in half at its Upper Big Branch mine in the days leading up to the April 5 explosion that killed 29 workers. In a 12-page letter posted on its website, Massey said its engineers resisted the change but were pressured by the Mine Safety and Health Administration, the federal agency charged with policing mines. Massey also repeated its calls for the agency to conduct its hearings into the accident in public.
  • Microsoft(MSFT), AT&T(T) to Unveil New Smartphones. Microsoft Corp. will formally unveil a lineup of smartphones using the revamped version of its mobile operating system on Oct. 11, and AT&T Inc. will begin offering them four weeks later, according to people familiar with the launch plans.
CNBC:
  • Fed's Bernanke, Pianalto Say Recovery Disappointing. The U.S. economic recovery remains disappointingly slow with unemployment too high, two top Federal Reserve officials said on Thursday, as they discussed the role of the U.S. central bank in spurring a stronger economy. Federal Reserve Chairman Ben Bernanke, in remarks at a town hall event held by the Fed, commented on the pain still felt by many Americans, but spoke only in generalities about the Fed's commitment to stimulate growth. The president of the Cleveland Fed, Sandra Pianalto, said growth is currently too slow to significantly reduce the "stubbornly high" unemployment rate. She said she is currently assessing the effectiveness of the tools that the central bank could employ if the Fed were to decide the economic recovery needs an extra boost.
IBD:
Business Insider:
Zero Hedge:
Forbes:
  • The Heavy Hand of Kathleen Sebelius. Writing in the Wall Street Journal she warns, “we will review large premium increases and identify those that are unreasonable.” This is one way ObamaCare imposes price controls. The legislation requires lots of new health insurance benefits—benefits that come with a cost. But Democrats sold it by telling people they would get more and pay less. It was a lie, and now Sebelius has to fain shock at the price increases.
CNNMoney.com:
  • Rising Medicaid Costs to Blow Hole in State Budgets. (graph) States will have to dig deeper into their already empty coffers next year in order to pay for rising Medicaid costs. Next fiscal year states will spend 7.4% more on the health care coverage -- which is already one of their biggest expenses -- according to a report released Thursday by the Kaiser Family Foundation.
NY Post:
The American Spectator:
  • No, You Can't Keep Your Current Health Coverage. The law is only just beginning to take effect, and already insurers are dropping coverage for tens of thousands of Americans because of its burdensome mandates. There will be a lot more of this as additional Obamacare regulations become active. And yet the president still claims that the law won't make you change your coverage or your doctor. Is it any wonder he doesn't want Americans to get their information from news outlets that will check his claims?
Rasmussen Reports:
  • Wisconsin Senate: Johnson (R) Jumps to Largest Lead Yet Over Feingold (D). Republican Ron Johnson now leads incumbent Democrat Russ Feingold by 12 points in Wisconsin’s race for the U.S. Senate. The latest Rasmussen Reports statewide telephone survey of Likely Voters shows Johnson picking up 54% support, while Feingold, who is running for his fourth term in the Senate, gets 42% of the vote with leaners included.
Politico:
  • Democrats Defend Agenda as They Exit Hill. Hours after adjourning a week early and punting on tax cuts and appropriations bills, House Democratic leaders offered a broad defense of their agenda, framing their accomplishments as historic while casting Republicans as obstructionists not worthy of the public trust. Speaking in a studio in the Capitol Visitors Center, House Speaker Nancy Pelosi (D-Calif.), Majority Leader Steny Hoyer (D-Md.), Majority Whip Jim Clyburn (D-S.C.) and Democratic Congressional Campaign Committee Chairman Chris Van Hollen (D-Md.) touted their health-care reform legislation, Wall Street regulatory reform, the deeply unpopular stimulus bill and support for the military.
Reuters:
  • Health Reform to Worsen Doctor Shortage: Group. The U.S. healthcare reform law will worsen a shortage of physicians as millions of newly insured patients seek care, the Association of American Medical Colleges said on Thursday. The group's Center for Workforce Studies released new estimates that showed shortages would be 50 percent worse in 2015 than forecast. "While previous projections showed a baseline shortage of 39,600 doctors in 2015, current estimates bring that number closer to 63,000, with a worsening of shortages through 2025," the group said in a statement. "The United States already was struggling with a critical physician shortage and the problem will only be exacerbated as 32 million Americans acquire health care coverage, and an additional 36 million people enter Medicare." The U.S. healthcare reform plan signed into law by President Barack Obama in March is designed to provide insurance to 32 million Americans who now lack it. The AAMC projected a shortage of 33,100 physicians in specialties such as cardiology, oncology and emergency medicine in 2015.
  • Currency Tensions Rising Ahead of IMF Meeting. Fears some countries may resort to currency depreciation to boost exports will be one of the hottest issues at the International Monetary Fund's annual meeting next week.
  • Christopher & Banks(CBK) Posts Wider-Than-Expected Q2 Loss. Women's apparel retailer Christopher & Banks Corp (CBK) reported a wider second-quarter loss than expected, hurt by weak sales towards the end of the quarter, sending its shares down 8 percent after the bell.
  • Pre-Crisis Jobs Level Regained Only in 2015 - ILO. Global employment will not recover to pre-crisis levels until 2015 if current policies are pursued, fuelling social tension, the International Labour Organisation said on Friday. For the United States -- where persistent unemployment has become one of the main issues in this November's elections -- the number of jobs still needed to regain pre-crisis levels is 6.9 million, ILO economist Steven Tobin said. The extended loss of employment and growing perceptions of unfairness risked increasing social tension, the ILO said.
Telegraph:
  • Hedge Funds Hold Ireland to Ransom Over Anglo Irish Bank Bail-Out. Hedge funds are holding the Irish government to ransom over its €30bn (£26bn) bail-out of one of the country's biggest lenders, Anglo Irish Bank. The investors are attempting to force the Irish authorities to pay them more for the debt they hold in Anglo Irish Bank and say if their demands are not met they could trigger a default crisis. The London and US-based hedge funds are fighting moves to pay them no more than current market prices for their holdings of junior debt in Anglo and are understood to be prepared to take the Irish government to court. Anglo junior debt is trading in a range of 23 to 25 cents in the euro and the investors are thought to be looking for a payout of 35 to 40 cents. However, the authorities are unwilling to offer a premium to the market price, according to a source close to the Irish government. The hedge funds in turn argue that the government has no legal right to force them to accept a haircut on the value of their holdings.
Wirtschaftswoche:
  • European Central Bank Governing Council member Ewald Nowotny said that the ECB will continue buying government bonds as long as there are inefficiencies in the markets.
Nikkei English News:
  • Former Federal Reserve Vice Chairman Donald Kohn, who retired Sept.1, said U.S. inflation could remain sluggish for a number of years, citing an interview.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (MMC), target $27.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 117.0 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 110.0 -1.0 basis point.
  • S&P 500 futures +.23%.
  • NASDAQ 100 futures +.34%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
8:30 am EST
  • Personal Income for August is estimated to rise +.3% versus a +.2% gain in July.
  • Personal Spending for August is estimated to rise +.3% versus a +.4% gain in July.
  • The PCE Core for August is estimated to rise +.1% versus a +.1% gain in July.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for September is estimated to rise to 67.0 versus a prior estimate of 66.6.
10:00 am EST
  • ISM Manufacturing for September is estimated to fall to 54.5 versus a reading of 56.3 in August.
  • ISM Prices Paid for September is estimated to fall to 59.0 versus a reading of 61.5 in August.
  • Construction Spending for August is estimated to fall -.4% versus a -1.0% decline in July.
Afternoon
  • Total Vehicle Sales for September are estimated to rise to 11.5M versus 11.46M in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, Fed's Evans speaking and the Fed's Fisher speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting, Diminishing QE2 Expectations


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 23.68 +1.85%
  • ISE Sentiment Index 77.0 -46.53%
  • Total Put/Call .85 +7.59%
  • NYSE Arms .91 -31.80%
Credit Investor Angst:
  • North American Investment Grade CDS Index 106.88 bps -.84%
  • European Financial Sector CDS Index 125.37 bps -4.14%
  • Western Europe Sovereign Debt CDS Index 156.0 bps -1.89%
  • Emerging Market CDS Index 224.58 bps -.43%
  • 2-Year Swap Spread 18.0 +2 bps
  • TED Spread 14.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 208.0 +2 bps
  • China Import Iron Ore Spot $141.10/Metric Tonne +.21%
  • Citi US Economic Surprise Index -7.90 +7 points.
  • 10-Year TIPS Spread 1.81% unch.
Overseas Futures:
  • Nikkei Futures: Indicating +65 open in Japan
  • DAX Futures: Indicating +22 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Retail, Biotech and Medical long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, then covered them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower despite gains in commodities, less sovereign debt angst and better economic data. On the positive side, Education and Homebuilding shares are especially strong, rising 1.0%+. The Portugal sovereign cds is dropping 6.22% to 406.67 bps and the UK sovereign cds is dropping -6.58% to 65.73 bps. On the negative side, Oil Tanker, Ag, Gold, Computer, Disk Drive, Semi, Computer Service, Drug and Oil Service shares are under pressure, falling more than .75%. Cyclicals are underperforming. DRAM prices continue to weaken, falling another -5.71% this week. The S&P GSCI Ag Spot Index, which led the recent stock rally, is declining -1.69% today and may be rolling over technically. Despite better economic data and recent declines, the 10-year yield is flat on the day at 2.51%. If tomorrow's economic data comes in better than estimates, I would expect to see a meaningful ratcheting down in QE2 expectations, which should boost the dollar. This could pressure stocks later in the day after an initial bump higher. Weak economic data tomorrow would likely have a muted impact. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting, diminishing QE2 expectations and China worries.

Today's Headlines


Bloomberg:




Wall Street Journal:






Bloomberg Businessweek:




MarketWatch:




CNBC.com:




Business Insider:




Zero Hedge:


New York Post:




New York Times:





U.S. News:




Washington Post:





Detroit Free Press:



ABC News:




LA Times:




MSNBC.com:




Real Clear Politics:




Rasmussen Reports:




Politico:




Reuters:



USA Today:




Le Temps:




Der Spiegel:




Sueddeutsche Zeitung:




Frankfurter Allgemeine Zeitung:




Kathimerini:




Cinco Dias:


Berlingske Tidende:




El Pais:



DigiTimes:



Xinhua:
  • Inflationary pressure is likely to increase in China on rising food prices, citing a report by the APEC Business Advisory Council. The government may further cut lending quotas and increase interest rates and bank reserve requirements to rein in inflation, according to the report.
  • Central China County Sees Surging Sales of "apartments up in the air" Despite Warning of Financial Risks. Despite the central government's efforts to control soaring housing prices and speculation, residents in a small county in central China's Henan Province are rushing to purchase, even if the apartments are still "up in the air". Realtors in Guangshan County in Xinyang City sell houses with just apartment layout plans. Some properties are even sold with old buildings on the foundations. A resident surnamed with Zhou, who paid 50 percent as a down payment last May for an apartment in the property project "Xianchengshuyuan", has not seen any construction signs on the lot. However, he is very optimistic about his potential apartment's value. "Although I haven't seen a brick, the price has almost doubled," he said.
Market News International:
  • China may further tighten the money supply even after January inflation was below market expectations, citing two people close to the National Development and Reform Commission. The government is "facing growing inflation pressure in the coming months," one of the people said.
Netease.com:
  • BYD Co.'s January vehicle sales fell 15% from a year ago to 52,0454 units, citing the company.
Iranian Press TV:



Bear Radar


Style Underperformer:

  • Small-Cap Growth (-.22%)
Sector Underperformers:
  • 1) Computer -1.59% 2) Agriculture -1.53% 3) Disk Drives -1.31%
Stocks Falling on Unusual Volume:
  • PLCM, DLB, MBI, SAN, KB, PRU, EGO, SA, TEO, CS, AAPL, VLCCF, XRTX, CRUS, ROVI, PEET, DXPE, ARMH, QLIK, THOR, NFLX, ANDE, IGTE, ADVS, APKT, SINA, SLXP, OTEX, TSLA, NTAP, BSI, AXR and HTZ
Stocks With Unusual Put Option Activity:
  • 1) AIG 2) ELX 3) STT 4) MU 5) PRU
Stocks With Most Negative News Mentions:
  • 1) COG 2) JPM 3) CMCSA 4) STT 5) GS

Bull Radar


Style Outperformer:

  • Large-Cap Value (-.24%)
Sector Outperformers:
  • 1) Banks +.89% 2) Wireless +.57% 3) HMOs +.52%
Stocks Rising on Unusual Volume:
  • VRNT, CSIQ, OPLK, LOGI, CHBT, MTW, SNX, CVD and CXW
Stocks With Unusual Call Option Activity:
  • 1) ACAS 2) RSH 3) CSIQ 4) AIG 5) SD
Stocks With Most Positive News Mentions:
  • 1) AIG 2) BA 3) GOOG 4) AAPL 5) PBR

Wednesday, September 29, 2010

Thursday Watch



Evening Headlines

Bloomberg:

  • Fed Presidents Far From Unanimous on Need for Further Easing. Regional Federal Reserve presidents showed they’re far from unanimous on whether the central bank should try to boost flagging U.S. growth with a second round of unconventional monetary easing. Policy makers have the tools to act and should respond “vigorously, creatively, thoughtfully and persistently” to a slow recovery, Boston Fed President Eric Rosengren said in a New York speech today. He spoke minutes after Philadelphia Fed President Charles Plosser said in New Jersey that the central bank would put its credibility at stake by taking actions such as buying more securities that may fail to reduce unemployment. The range of views shows that if Chairman Ben S. Bernanke aims to restart Treasury purchases in November, as some economists project, he may have to do so over the objections of several central bank officials.
  • Portugal Yields Hit 13-Year High to Spain as Deficits Diverge: Euro Credit. Portugal’s budget stalemate is driving the nation’s bond yields to the highest levels in at least 13 years relative to neighboring Spain, which has been more successful in tackling its budget deficit. Investors demand 223 basis points more in yield to lend to Portugal for 10 years than to Spain. That’s more than 20 times the level at the start of this year as Portuguese leaders failed to agree on a plan to cut the European Union’s fourth-largest deficit. The gap between Portuguese bonds and those of Germany, the European benchmark, reached a euro-era record of 441 basis points on Sept. 28. “If you combine the lagging deficit with the situation between the opposition and the government, the result is depicted in the spreads,” said Ioannis Sokos, a London-based interest-rate strategist at BNP Paribas SA.
  • U.S. House Passes Measure Pushing China on Yuan Value. The U.S. House of Representatives passed legislation prodding China to raise the value of the yuan, as Democratic lawmakers pressed election-season proposals they said would increase factory employment. The measure on China’s currency passed 348-79, with 99 Republicans joining Democrats.
  • CFTC Said to Propose 20% Limit on Bank Ownership of Swaps Clearinghouses. The Commodity Futures Trading Commission is considering limiting the ownership stakes that banks and investors have in swaps clearinghouses, exchanges and trading systems to 20 percent, people familiar with the matter said. The CFTC, which is presenting its first proposed rules Oct. 1 for the $615 trillion over-the-counter derivatives market, may not grant exemptions for existing entities, said the people, who declined to be identified because the deliberations haven’t been made public. For clearinghouse stakes, no group of bank holding companies, non-bank financial firms, major swaps users or dealers will be allowed to own more than 40 percent of the entities, the people said.
  • Ireland Said to Weigh Taking Majority Stake in Allied Irish. The Irish government is in talks with Allied Irish Banks Plc, the nation’s second-largest lender, that may result in the state taking majority ownership of the bank, said two people with direct knowledge of the discussions. The talks revolve around whether Allied Irish, already 18.7 percent owned by the government, needs to raise more than the 7.4 billion euros ($10.1 billion) Ireland’s financial regulator directed it to raise in March, people briefed on the matter said today. The talks may last through the night and a decision is set to be announced before European markets open tomorrow, one of the people said.
  • Debt Markets Bifurcate as Banks Hoard, Bond Funds Flourish: Credit Markets. Record-low borrowing costs for the biggest U.S. companies such as Microsoft Corp. are failing to trickle down to Mel Hodges’s five-person computer consulting firm in Pennsylvania.
  • Pentagon Losing Control of Bombs to China Neodymium Monopoly. A senior manager at a company that churns out metals routinely used in U.S. smart bombs pauses in mid-sentence when his phone rings: a Wall Street stockbroker looking for information. He makes a note to have an assistant call back -- someone who is fluent in English, not just Chinese. “It’s a seller’s market now,” says Bai Baosheng, 43, puffing a cigarette in his office in Baotou, China, where his company sells bags of powder containing a metallic element known as neodymium, vital in tiny magnets that direct the fins of bombs dropped by U.S. Air Force jets in Afghanistan. A generation after Chinese leader Deng Xiaoping made mastering neodymium and 16 other elements known as rare earths a priority, China dominates the market, with far-reaching effects ranging from global trade friction to U.S. job losses and threats to national security.
  • JPMorgan(JPM) Asks Judges to Delay Rulings as It Reviews Foreclosure Documents. JPMorgan Chase & Co. , the third- largest U.S. servicer of mortgages, said it’s asking judges to postpone rulings in pending foreclosure cases while the bank reviews and possibly resubmits statements. JPMorgan began to “systematically re-examine” foreclosure filings after learning that employees may have signed affidavits without personally reviewing underlying records, said Thomas Kelly, a spokesman for the New York-based firm.
  • Ambac Sues Bank of America(BAC) Over Countrywide Bonds. Ambac Assurance Corp. sued Bank of America Corp. over $16.7 billion of mortgage-backed securities, saying the bank’s Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made loans. Ambac found that 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.
  • Japan Factory Output Unexpectedly Fell in August, Adding to Signs of Slump. Japan’s industrial production unexpectedly fell in August, adding to concerns the nation’s export-led recovery is slowing. Factory output decreased 0.3 percent from July, the third monthly decline, the Trade Ministry said in Tokyo today. The median estimate of 26 economists surveyed by Bloomberg News was for a 1.1 percent gain. Signs of diminished global demand and the yen’s appreciation are threatening earnings of companies from Murata Manufacturing Co. to Nissan Motor Co. Exports grew the least this year in August and the Bank of Japan’s Tankan survey yesterday showed companies forecast pessimists will outnumber optimists by year-end. “This number was pretty disappointing,” said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo. “It clearly shows decelerating overseas demand is weighing on output.”

Wall Street Journal:
  • BHP(BHP), Rio Tinto(RTP) May Re-Evaluate Mining Venture. BHP Billiton and Rio Tinto executives are evaluating revisions to or a postponement of their proposed $116 billion iron-ore venture in Australia in the face of stiff regulatory hurdles, according to people familiar with the matter.
  • Interactive Brokers(IBKR) Reconsidering Market-Making Role - CEO. The head of Interactive Brokers Group Inc. (IBKR) said that his firm's market-making unit may withdraw from some options markets or even convert into a high-frequency trading firm because of what the company views as an unfair regulatory regime.
  • The Only Policy Left: Growth. The GOP needs leaders willing to do what's necessary to get it.
  • European Police Probe Terror Plot. European police are searching for a suspected hit team believed to be operating in Europe, and possibly planning a shooting spree in an urban center, according to a senior intelligence official. The investigation, driven by U.S. intelligence, is focusing on a man of unknown age and background known only as "Mauritani," the official said. The threat reports are too broad for specific action, intelligence officials say, although the strongest intelligence suggests that the group may be preparing an attack against an unprotected target or targets in the U.K., France or Germany.
  • Infighting Besets Financial-Oversight Council. Some of the country's top financial regulators are clashing over turf just days before a crucial meeting designed to kick off a new oversight council, a centerpiece of the financial-regulation bill, according to people familiar with the matter.
  • Democrats and the Health-Reform Albatross. By making so many misleading claims, the president created an army of opposition.
  • McDonald's(MCD) May Drop Health Care. McDonald's Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul. The move is one of the clearest indications that new rules may disrupt workers' health plans as the law ripples through the real world. Trade groups representing restaurants and retailers say low-wage employers might halt their coverage if the government doesn't loosen a requirement for "mini-med" plans, which offer limited benefits to some 1.4 million Americans.
  • Finally, Some Hope. Republicans show that they're serious about curbing runaway government. How big has the government grown under the Obama administration? "The average level of U.S. government spending as a percentage of GDP from the end of World War II to the present is 19.6 percent," observes the Heritage Foundation. "In the past two years that level has exploded, reaching 24.7 percent in 2009 and an estimated 25.4 in 2010. . . . Without urgent action the U.S. is on course for national bankruptcy."
CNBC:
Business Insider:
Zero Hedge:
  • Mark Pittman Wins: Fed to Disclose Emergency Lending Details by December 1. Mark Pittman's last valiant effort to bring some transparency to the most destructive organization in the history of mankind has succeeded. According to testimony to be delivered to the House tomorrow, "under a framework established by the act, the Federal Reserve will, by December 1, provide detailed information regarding individual transactions conducted across a range of credit and liquidity programs over the period from December 1, 2007, to July 20, 2010. This information will include the names of counterparties, the date and dollar value of individual transactions, the terms of repayment, and other relevant information.
CNNMoney.com:
Real Clear Politics:
Rasmussen Reports:
Politico:
  • Landrieu Won't Drop Hold on Lew. Sen. Mary Landrieu (D-La.) will not lift her hold on Office of Management and Budget director nominee Jack Lew, putting increased pressure on the White House to either meet her demand to lift a ban on deepwater drilling or use a recess appointment for the budget chief.
USA Today:
Reuters:
  • U.S. Senate Votes to Extend GSE Loan Limits. The U.S. Senate on Wednesday approved a one-year extension of increased loan limits on mortgages backed by the government, paving the way for final action in the House of Representatives. The Senate voted 69-30 to approve a stopgap spending bill to keep the government running through mid-December.
  • Citi(C) Critic Mayo Questions Bank's Capital Spending Cuts. Citigroup Inc (C) reduced its capital spending by almost 75 percent since 2007, risking the long-term upkeep of its infrastructure, prominent bank analyst and Citigroup critic Mike Mayo wrote in a report on Wednesday.
Telegraph:
  • Europe's Austerity Anger Grows. More than 100,000 marchers converged on Brussels from across the EU to protest austerity measures on Wednesday, while Spanish unions took the extraordinary step of breaking ranks with Spain's socialist government by launching a general strike. "Workers are on the streets today with a clear message to Europe's leaders," said John Monks, head of the European Trade Union Confederation. "There is a great danger that workers are going to pay the price for the reckless speculation that took place in financial markets. You have to reschedule these debts so that they are not a huge burden and cause Europe to plunge down into recession," he said, reflecting growing bitterness among ordinary people that they are bearing the brunt of austerity while bondholders have been shielded from losses.
AFP:
  • Anglo Irish Failure Would 'Bring Down' Ireland: Minister. Ireland's finance minister has warned the failure of Anglo Irish Bank would "bring down" the country, as regulators prepared to reveal Thursday the cost of bailing out the stricken lender. "Any Anglo failure would bring down the sovereign," the finance minister was quoted as saying in the FT. "It is systemically important not because of any intrinsic merit in the bank. But because of its size relative to the national balance sheet. "No country could contemplate the failure of such an institution." Ireland will disclose Thursday the total cost of the state bailout of Anglo Irish.
Yomiuri:
  • The Bank of Japan may cut its assessment of the economic outlook at a meeting scheduled for Oct. 28. The central bank may cut its forecast for fiscal 2010 growth in real gross domestic product to between 2% and 2.5%, compared with its current 2.6% estimate. The bank may also cut its outlook for fiscal 2011.
Jiji:
  • Japan may budget measures to secure supplies of rare earths after China curtailed exports of the minerals, citing Japanese trade minister Akihiro Ohata.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.50 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 111.0 -1.5 basis points.
  • S&P 500 futures -.18%.
  • NASDAQ 100 futures -.19%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (MKC)/.59
  • (LWSN)/.09
Economic Releases
8:30 am EST
  • 2Q GDP is estimated to rise +1.6% versus a prior estimate of a +1.6% gain.
  • 2Q Personal Consumption is estimated to rise +2.0% versus a prior estimate of a +2.0% increase.
  • 2Q Core PCE is estimated to rise +1.1% versus a prior estimate of a +1.1% gain.
  • Initial Jobless Claims are estimated to fall to 460K versus 465K the prior week.
  • Continuing Claims are estimated to fall to 4473K versus 4489K prior.
9:45 am EST
  • Chicago Purchasing Manager for September is estimated to fall to 55.5 versus a reading of 56.7 in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bernanke speaking, Fed's Pianalto speaking, NAPM-Milwaukee Index, Bloomberg FCI Sept. reading, (VCI) Investor Conference, (MMC) Analyst Meeting, (WU) Investor Day, weekly EIA natural gas inventory data, Oppenheimer Industrials Conference and the Wells Fargo Consumer Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.