Wednesday, December 08, 2010

Wednesday Watch


Evening Headlines

Bloomberg:

  • Mortgage-Bond Yields That Guide Home Loan Rates Soar to Highest Since June. Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates jumped to their highest levels in almost six months, suggesting borrowing costs will continue to climb from record lows. Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose to 4.04 percent as of 5 p.m. in New York, according to data compiled by Bloomberg. Yields, whose changes typically create similar movements in loan rates, have increased from 3.27 percent on Nov. 4.
  • Greenlight's Einhorn Says Global Sovereign Debt Crisis Looms. David Einhorn, president of hedge- fund operator Greenlight Capital Inc., said the global economy will face a sovereign debt crisis after governments around the world increased spending to deal with the fallout from the financial crisis. “We managed to transfer a lot of the problems from the private sector to the public sector,” Einhorn said in an interview with the Charlie Rose television show. “It’s created a very, very large budget deficit. And it’s created a monetary policy that’s extremely easy. It is eventually going to come to a tough spot.” The U.S. reported on Oct. 15 its second-largest annual budget deficit, $1.29 trillion, for the fiscal year ended Sept. 30. The Federal Reserve’s decision to buy an additional $600 billion in Treasuries to lower borrowing costs and stimulate the economy will probably result in rising prices of basic goods for consumers and businesses, curtailing economic growth, according to Einhorn. “It’ll be counterproductive,” Einhorn said. “The goal of quantitative easing right now is to raise the inflation rate. If you do raise the price of clothing, it effectively lowers everybody’s standard of living and gives them less money to buy other things.”
  • Bank Swaps Led by Citigroup(C) Drop Below Europe. U.S. bank bonds are about the safest on record relative to debt from European financial institutions as a growing economy allows Citigroup Inc. to wean itself off government support and a fiscal crisis roils Europe. The average cost of protecting the notes of the six biggest U.S. banks including Citigroup and JPMorgan Chase & Co. against default fell to 12.16 basis points below the Markit iTraxx Financial Index of 25 European banks and insurers. Credit- default swaps on U.S. banks were 341 basis points higher than their European counterparts at the height of the credit crisis in October 2008.
  • OPEC to Maintain Production Quotas as Crude Exceeds $90: Energy Markets. Oil’s rally to a more-than-two-year high is unlikely to coax OPEC into raising production quotas at this week’s meeting in Ecuador, as member nations consider the global recovery strong enough to withstand price gains. Iran, Venezuela and Libya said this month they would accept prices as high as $100, while OPEC Secretary- General Abdalla El-Badri said the group won’t necessarily boost production unless there’s a need for more oil. Prices will return to $100 a barrel for the first time in two years during 2011, according to strategists at Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Bank of America Merrill Lynch.
  • Bernanke's 21-Month U-Turn Takes 60 Minutes: Commentary by Caroline Baum. He probably wishes he hadn’t said it, the part about the Federal Reserve not printing money and his 100 percent confidence in his ability to raise interest rates at the appropriate time to prevent an acceleration of inflation. But he did. The Fed does (print money). And nothing is 100 percent certain in this world, except death and taxes. After Sunday’s interview, we no longer have to worry about the Fed’s commitment to doing whatever it takes to promote a self-sustaining recovery. The real concern is policy makers won’t know when they’ve done enough. If history is any guide, we can be almost 100 percent certain that they won’t.
  • China Asks Flour Makers to Refrain From Price Hikes. China has asked some of the country’s biggest flour producers to refrain from raising prices until March, when the National People’s Congress holds annual meetings, the Beijing Times reported today, without citing anyone.
  • MBIA Sues Morgan Stanley(MS) Over Mortgage-Backed Debt. MBIA Insurance Corp. sued Morgan Stanley over allegations the securities firm “fraudulently induced” the insurer to issue policies covering $223.2 million in mortgage-backed securities. The bond-insuring unit of MBIA Inc. claims Morgan Stanley and one of its units failed to disclose that most of the 5,000 underlying loans didn’t meet the underwriting guidelines of the firm or the originators, according to a complaint filed yesterday in New York state court in White Plains. “A vast number of the mortgage loans were made to borrowers who could not reasonably have been expected to repay their mortgage debt,” MBIA’s attorneys alleged in the complaint.
  • Italy Budget Adds Political Risk to Debt Woes for Berlusconi: Euro Credit. Italy’s passage of a 2011 budget plan paves the way for a confidence vote that will decide Prime Minister Silvio Berlusconi’s political fate and complicate passage of more deficit cuts called for by the European Union. “It’s a problem if Italy really does become ungovernerable, or if Berlusconi is clinging on for dear life,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London.
  • Texas Leaders Demand Spending Cuts Topping $500 Million in Current Year. Texas Governor Rick Perry and two other state leaders directed agencies to curb spending by as much as $750 million over the next nine months, citing “insufficient revenue” to cover costs. The 2.5 percent reduction is aimed at producing savings of $500 million to $750 million, said Mike Walz, a spokesman for Lieutenant Governor David Dewhurst, who signed a letter to state officials with Perry and House Speaker Joe Straus. State revenue receipts for the year ended Aug. 31 came in $2 billion below estimates, they noted in the letter, which was dated yesterday. “Reduced spending in the current fiscal year puts state government in a better position to prepare for the budget reductions that will be necessary to balance the budget,” Perry, Dewhurst and Straus, all Republicans, said in the letter.
  • BlackRock(BLK) May Lose Massachusetts Pension Assets Because Firm Not 'Focused'. BlackRock Inc., the world’s biggest money manager, is set to lose assets it oversees for the $42.9 billion Massachusetts state pension fund because of concern that the firm isn’t adequately focused on some fixed-income markets.
  • Texas Instruments(TXN) Fourth-Quarter Profit, Sales Forecasts Match Estimates. Texas Instruments Inc., the second- largest U.S. chipmaker, narrowed its fourth-quarter profit and sales forecasts. The midpoints of the ranges are in line with analysts’ projections.
  • Wind-Power Producer NextEra Replaces California Turbines to end Bird Suit. NextEra Energy Resources LLC, the largest U.S. producer of wind power, agreed to replace thousands of outdated turbines in California, ending a five-year legal battle with environmental groups that claimed the spinning blades are killing endangered birds.
  • U.S. Treasury Sets Record for Debt Sales at $2.116 Trillion. The U.S. Treasury set a record for borrowing in a calendar year after selling $32 billion of three- year securities to push its total note and bond sales to $2.116 trillion amid all-time high demand for the debt.
  • Japan's Machinery Orders Decline for Second Month. Japanese machinery orders fell for a second month in October because of declining demand from the service sector, adding to signs that the nation’s export-led recovery is stalling.
  • Kerry Says Congress Is 'Impatient,' U.S. May Take Action on Yuan Next Year. Senate Foreign Relations Committee Chairman John Kerry said the U.S. Congress is “impatient” with the artificially low value of China’s yuan and may take action next year. The Massachusetts Democrat, speaking in Washington about U.S.-China relations, also said that if the Group of 20 nations isn’t able to address currency values, the U.S. should find another way to deal with the issue. “The United States Congress is getting increasingly impatient and in the next session may take matters into its own hands,” Kerry said, noting that the value of the yuan contributes to the U.S. trade deficit. “If the G-20 can’t deal with this problem, then we ought to look at other multilateral tools, ones with teeth, that can fix this.”
  • Fortune Brands(FO) May Spin Off Golf, Home and Security Businesses, WSJ Says. Fortune Brands Inc., the maker of Jim Beam bourbon and Titleist golf balls, may split into as many as three separate businesses, the Wall Street Journal reported, citing unidentified people familiar with the matter. The home and security unit could be spun off to shareholders and the same may be done for the golf division while Fortune Brands would continue as a publicly traded liquor company, the Journal reported yesterday, citing people briefed on the plan. An announcement may come as soon as today, it said.

Wall Street Journal:
  • Fannie, Freddie Pressed on Mortgages. Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth, according to people familiar with the situation. An agreement with the two government-owned mortgage giants to write down so-called underwater loans could reduce the threat to the U.S. housing market from the glut of homeowners believed at risk of default should their personal finances or home prices worsen. A deal would deepen losses at Fannie Mae and Freddie Mac, which already have cost taxpayers about $134 billion.
  • Goldman Sachs Hires Lures Big New York Prosecutor In House. Goldman Sachs(GS) is hiring David Markowitz of New York Attorney General's office for its litigation and regulatory proceedings group. Markowitz joined the attorney general's office in 2008 from the SEC, where he worked eight years.
  • Canadian Finance Minister Says European Response to Crisis Still Insufficient. European nations haven’t yet managed to get ahead of the financial crisis that’s rocking the region, said Canadian Finance Minister Jim Flaherty. “It’s important… to get ahead of the markets rather than play catch-up,” said Mr. Flaherty. “I think they have to demonstrate to the markets that they can fund adequately to restore confidence by the markets in the sovereigns and in the banks.” Mr. Flaherty’s comments come as global investors fret that other European nations — particularly Portugal and Spain — may also fall prey to fears that they could default on debt, spurring a full-fledged banking crisis. His sentiments echo concerns aired Tuesday by International Monetary Fund chief Dominique Strauss-Kahn, who said European nations need to come up with a comprehensive fix for their problems, rather than the slow, ad hoc response they’ve shown thus far.
  • Sale of New Silver Coin Delayed. The U.S. Mint said it is delaying the sale of 2010 "America the Beautiful" five-ounce silver coins due to concerns about the high prices and premiums that were to be charged for the bullion coins by its network of authorized purchasers.
  • New Players, Ties Surface in Trading Probe. Federal authorities have failed in two attempts to enlist the help of individuals to gather evidence against Steven Cohen's SAC Capital Advisors LP as part of a wide insider-trading investigation.
  • For New MBA Grads, Jobs Still Tough to Find.
  • Unions Want Limits on Firms' Use of Contractors. Unions are stepping up a campaign to get the Obama administration to crack down on companies that treat workers as independent contractors instead of employees—a practice that effectively puts tens of thousands of workers out of reach of labor organizers.
Business Insider:
NY Times:
Forbes:
  • The Economic Incompetence of the Political Class. The sovereign debt crisis now threatening Europe, as well as major American states and cities, discloses the sheer incompetence of a political class that has over-promised, under-delivered and squandered vast amounts of their citizens' wealth.
mocoNews.net:
  • CNBC Brings Its 'Real-Time' Data To The iPad - Paid Products Coming Soon. As its rivals look to buttress their existing “real-time” data businesses with separate digital products, CNBC has released its first iPad app that promises to bring up-to-the-second financial information to a more general audience. While most real-time services costs thousands of dollars in subscription fees, CNBC is keeping the iPad app free. However, in the coming weeks, the company is planning to rollout additional apps, with a focus on offering premium, paid content.
Politico:
  • Elizabeth Edwards Dies of Cancer. Elizabeth Edwards, who remade the role of the political spouse for a new media age, died Tuesday at her home in Chapel Hill, N.C., after a six-year struggle with cancer. Edwards, a lawyer, best-selling author and the wife of former U.S. Sen. John Edwards, was 61.
  • Harry Reid Tries to Add Online Poker to Tax Bill. Senate Majority Leader Harry Reid is trying to use the tax cut package President Barack Obama brokered with Republicans to legalize online poker, POLITICO has learned — a move that could further complicate the deal Obama announced Monday.
  • Anger of House Democrats Boils Over. House Democrats railed against President Barack Obama's tax cut deal with congressional Republicans in a closed-door caucus meeting Tuesday night, even as there were signs that the White House could pick up enough support for the package to win enactment. Speaker after speaker expressed frustration at the president's acquiescence to Republican demands for a multi-year freeze on the rates for top income in exchange for an extension of unemployment insurance and a basket of Democratic-favored tax breaks, according to several Democratic sources.
Telegraph:
The Guardian:
YTN:
  • Artillery shells fell in North Korean waters today. The shells fell near South Korea's Baengyeong Island and may have been fired by North Korea.
Asahi:
  • North Korean 'New Military' Led by Hard-Line General. The North Korean propaganda machine has repeatedly described Kim Jong Un as an artillery genius who can speak seven languages, took up a rifle when he was 3 and is capable of striking a target every time he fires. But a hard-line army general who represents a "New Military" with increasing influence over the North Korean regime appears to be the true architect of the Nov. 23 artillery attack on Daeyeonpyeongdo island, according to sources.
ABC Radio Australia:
China Securities Journal:
  • Shanghai will be among the first group of Chinese cities to undertake property tax trials, citing an official with the city's housing bureau.
Haaretz.com:
Evening Recommendations
Citigroup:
  • Reiterated Buy on (GE), target $21.
Susquehanna:
  • Rated (UNP) Positive, target $115.
  • Rated (KSU) Positive, target $60.
  • Rated (WERN) Positive, target $28.
  • Rated (NSC) Positive, target $76.
Night Trading
  • Asian equity indices are -.75% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.50 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 104.25 -3.5 basis points.
  • S&P 500 futures -.29%
  • NASDAQ 100 futures -.21%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (COST)/.69
  • (UNFI)/.39
  • (GIII)/2.09
  • (KFY)/.24
  • (MATK)/.37
Economic Releases
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,400,000 barrels versus a +1,066,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -300,000 barrels versus a +561,000 barrel gain the prior week. Distillate supplies are estimated to fall by -900,000 barrels versus a -194,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +1.0% versus a -2.9% decline the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly MBA mortgage applications report, Barclays Tech Conference, Goldman Sachs Financial Services Conference, CSFB Holiday Conference, Wells Fargo Real Estate Conference, UBS Media/Communications Conference, (ROK) analyst meeting and the (YUM) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity 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.

1 comment:

The End Of The Cycle Manifests said...

On December 7, 2010 bond vigilantes called interest rates higher globally, turning currencies, commodities, gold mining stocks and bonds lower. It was a transitional day into the age of deleveraging which will be characterized by rising interest rates and sovereign debt crisis. The specter of a failed Treasury Auction as well as a strong sell of the Euro creates the risk of the failure of the European Financial Institutions and the risk of Götterdämmerung, that is an investment flameout.