Tuesday, August 30, 2011

Morning Note Aug 30th

August 30, 2011

US equity futures are all trading lower relative to fair value ahead of the August Consumer confidence figures and Fed minutes release at 14:00 ET for clues as to where the Fed's thinking is with respect to further monetary stimulus.

Libor fixings 

Overnight Libor: Dollar: 0.143% vs prior 0.144%; Sterling: 0.580% vs prior 0.580%; Euro: 0.836% vs prior 0.837%
1-month Libor: Dollar: 0.222% vs prior 0.221%; Sterling: 0.655% vs prior 0.655%; Euro: 1.297% vs prior 1.294%
3-month Libor: Dollar: 0.326% vs prior 0.323%; Sterling: 0.883% vs prior 0.882%; Euro: 1.483% vs prior 1.483%

Sep WTI crude ($0.54) to $86.73

Natural gas ($0.041) to $3.789

Gold +$5.50 to $1792.09

10-year yield 2.2181%
30-year yield 3.5615%

Asian Markets

Most Asian markets followed Wall Street up this morning, encouraged by positive economic data from the US; banks rose across the region in response to a large bank merger in Greece. In high turnover, riskier plays came back into fashion as Hong Kong rose. China Construction Bank (939.HK) rose 2%, leading financials higher, after Bank of America (BAC) announced it was selling half its stake. Japan rose, but volume was low. Carmakers rose on news of higher consumer spending in the US, though they finished off their highs. Sony (6758.JP), Toshiba (6502.JP), and Hitachi(6501.JP) finished 1-4% higher on a report they will merge their small LCD units; other tech stocks followed them up. Retailers underperformed on disappointing sales data. On the news fromGreece, banks led South Korea higher. Australia finished flat. China reversed early gains to fall slightly in low volume. Japan July jobless rate 4.7% vs cons 4.5%. July household spending (2.1%) y/y vs cons (3.0%). Australia July building approvals +1.0% m/m vs cons +2.0%. The yen is trading at 76.69 to the US dollar.

European Markets

European equity markets opened higher following gains on Wall Street and across Asia, with UK markets leading gains having been closed yesterday for a bank holiday. Major indices pared early advances. All sectors trade higher led by basic materials +3.6%, travel & leisure +2.2% and energy +2.1%, whilst retail +0.1%, telecom and chemicals both +0.2% lead laggards. Banks are up +1.7%, with UK banks aided by a broker upgarde of Royal Bank of Scotland, thought the strong gains seen in Greek banks yesterday and initially today following the proposed merger of EFG Eurobank (EUROB.GA), Alpha Bank (ALPHA.GA) was hit by profit taking, the sector down over (6%) and EFG Eurobank over (18%). UK Jul mortgage approvals 49.2k vs consensus 49k and prior revised 48.5k from 48.4k. EuroZone Economic and Consumer sentiment due at 5ET. The pound and the euro are trading at $1.6334 and $1.4436 respectively.

Today's Economic Releases (Eastern Time)

04:30 UK Mortgage Approvals (Jul); actual 49.2k; consensus 49.0k
05:00 Eurozone Service Confidence Index (Aug); 3.7 vs  consensus 6.0 and prior 7.9
05:00 Eurozone Consumer Confidence Index (Aug); (16.5) vs consensus (16.6) and prior (11.2)
05:00 Eurozone Business Climate Indicator (Aug); 0.07 vs consensus 0.15 and prior 0.44
05:00 Eurozone Industrial Confidence Index (Aug); (2.9) vs consensus (2.0) and prior 1.1
07:01 UK Gfk Consumer Confidence Survey (Aug); consensus n/a
07:45 US ICSC-Goldman Chain Store (27-Aug); consensus n/a
08:55 US Redbook Chain Store (27-Aug); consensus n/a
09:00 US Case-Shiller Home Price Index (Jun); consensus (4.8%)
10:00 US Consumer Confidence (Aug); consensus 52.0
16:30 US API Crude Inventories (26-Aug); consensus n/a 

Today's Key Events (Eastern Time)

12:15 Fed's Kocherlakota speaks on economic outlook
13:00 VMware Financial Analyst Day
14:00 FOMC minutes of August 9 meeting released
17:00 Bionovo conf. call to discuss Menerba's Tolerability Trial Results -             800.926.5187 begin_of_the_skype_highlighting            800.926.5187      end_of_the_skype_highlighting      
—:— European Society of Cardiology Congress
—:— Caris Silicon Valley Tech Tour
—:— Dreamforce ~ Cloud Computing Industry Event
—:— Global Hunter Securities with Panhandle Oil & Gas
—:— Global Hunter Securities with Symmetricom
—:— International Epilepsy Congress ~ IEC
—:— Morgan Stanley Aerospace & Defense Unplugged Conference (canceled due to storm)
—:— Morgan Stanley Global Industrials Unplugged Conference 

Company Specific News

GEDU (Global Education & Technology reports Q2 EPADS $0.06 ex-items vs Reuters $0.03)

Positive News
GD (General Dynamics (GD) awarded $3.7B US Army contract)
PANL (Universal Display announces agreement with Panasonic Idemitsu OLED lighting for OLED lighting products)


Long Treasuries are clawing back about half of yesterday’s losses, with the 10-year yield down 4 bps to 2.22% amid support from a sharp drop in Eurozone economic confidence and weaker-than-expected retail sales and labour market data in Japan. The euro has slipped below US$1.44, also undermined by ECB President Trichet’s comments yesterday that the bank might reconsider its concerns about inflation risks, suggesting the central bank may signal a pause in its rate tightening cycle at the next meeting.

On deck today…The S&P Case-Shiller House Price Index (9:00) was likely unchanged in June on a seasonally-adjusted basis, taking the yearly rate slightly deeper into negative territory (at -4.6% y/y). However, a surprising 0.9% bounce in the FHFA measure suggests some upside risk (79% correlation between the two). Still, the pullback in July pending home sales and the backlog of foreclosed properties suggest prices won’t be off to the races anytime soon. 

And neither will consumer confidence. In fact, quite the contrary, given the eight-point plunge in the University of Michigan measure in August to its second lowest level in three decades. The Conference Board's Consumer Confidence Index (10:00) looks to slide nearly as much to 53 in August, a big setback from 72 reached earlier this year and about half the norm prevailing in good times. The “jobs-hard-to-get” measure will be eyed closely ahead of Friday’s jobs report. It has held steady this year, but could have lurched higher in August given increased economic and political uncertainty, indicating a possible upturn in the unemployment rate.

Fedspeak…The Minutes of the August 9 FOMC Meeting (2:00) should provide a sneak peak into Chairman Bernanke’s QE toolbox, providing some sense of which tool—the big QE3 balance-sheet expansion hammer or the smaller maturity-shifting balance-sheet tweaking icepick—he is likely to use should the recovery wheels come off the rails. The minutes may also show whether other members sympathized with the three dissenters who opposed specifying an extended timeframe for low rates. If there was broader opposition to more stimulus, the Chairman might need a stronger set of springs in his toolbox to hurdle the QE3 bar.

One of the dissenters at the last meeting, Minneapolis President Kocherlakota, speaks on the economy at 12:15 today. By contrast, an ardent stimulus supporter, Chicago President Evans, is expected to speak on CNBC after 7:00 this morning. He likely hasn’t changed his view that the economy can use all the help it can get.

In Canada, the triple-whammy of weaker global demand, softer commodity prices and a still-strong loonie will take a serious toll on the Q2 current account balance (8:30), which likely ballooned to $58 billion annualized in Q2 ($14.5 billion not annualized) from $35.7 billion in Q1. A worse-than-expected result could flag an outright contraction in tomorrow’s Q2 GDP report, where the deterioration in net exports is expected to carve five percentage points from growth, leaving the economy flat. The expected current account deficit, at 3.4% of GDP, would be modestly above the norm of the past two years. It would be the 11th straight shortfall after a decade-long string of surpluses, pushing Canada’s net foreign debt above $200 billion, or about 12% of GDP. Despite the worrisome trend, that’s still well below the 44% peak in 1994.

The recent pullback in commodity prices will also show up in a third straight moderate decline in the July industrial product price index. An expected 0.3% monthly decrease should pull the yearly rate below 5%. Excluding energy, producer prices have climbed at a more subdued 2.4% y/y rate, held down by the weak U.S. dollar.

Eurozone sovereign debt crisis 

- Trichet says ECB inflation view under study: Reuters noted that ECB President Trichet said on Monday that the central bank is reviewing the risks to price stability, suggesting that it may tone down its view on inflation and keep rates on hold. The article pointed out that while Trichet said that the ECB expected inflation to remain above 2% in the months ahead, he did not use the phrase "upside risks to price stability". Recall that Trichet used this language after the ECB's last policy meeting on 4-Aug. Trichet also downplayed recession risks, noting that "Looking ahead, we continue to see the euro area economy growing at a modest pace in a context of overall relatively sound economic fundamentals for the euro area as a whole."

- Trichet and Rehn defend Europe's banks: The FT noted that ECB President Trichet and EC economic chief Rehn went before the European parliament on Monday to insist that European banks do not have a capitalization or liquidity problem. The paper said that Trichet highlighted the fact that the €14T in collateral that banks could provide the ECB was more than enough to ensure liquidity, adding that the central bank has pledged to continue providing unlimited loans for such collateral at least until early next year.

- IASB criticizes Greek debt writedowns: The FT reported that in a letter sent to the European Securities and Markets Authority, the EU's market regulator, the International Accounting Standards Board criticized the inconsistent manner in which banks and insurers have been writing down the value of their Greek sovereign debt. The article noted that some banks and insurers have written down their holdings by a half, while others have done so by only a fifth. The paper said that while the letter did not single out particular countries or banks, a source noted that concerns have revolved around the approach taken by BNP Paribas and CNP Assurances, which used mark-to-model rather than mark-to-market valuations.

Germany delays EFSF vote: The WSJ noted that Germany's parliament pushed the highly anticipated vote on the expansion of the EFSF back by a week to 29-Sep. The delay was attributed to the desire of some lawmakers to help in events surrounding the pope's visit. The article pointed out that parliament is being asked to allow the fund to buy sovereign bonds in the secondary market and to boost its lending capacity to €440B from €250B.

- German debate on EFSF a test for Merkel: The WSJ said that German Chancellor Merkel is facing heightened resistance within her ruling coalition over expanding the mandate of the EFSF. According to the article, the dissent reflects the pressure many rank-and-file German politicians face as they try to justify the recent string of bailouts for Greece and other countries. The paper said that while Merkel is expected to ultimately prevail given the support from the opposition parties, she faces a tough debate over the next month that is likely to exacerbate market concerns over the ability of Europe's policy makers to implement a cohesive solution to the crisis.

- Merkel tells voters Germany will emerge stronger: Bloomberg reported that German Chancellor Merkel, in the first of five campaign appearances this week, told voters that Germany will emerge stronger from the sovereign debt crisis. Merkel also reiterated her opposition to Eurobonds, noting that . “Putting the debt all in one pot,” while allowing others to live beyond their means and expect a bailout “is against all common sense.”

- Bailout fatigue fuels Finland collateral demand: Bloomberg said that Finland's demand for collateral on new Greek loans seems to have left European leaders with two choices: either accept its terms and risk the rescue plan, or reject collateral and help bring Finnish euro-skeptics to power. According to the article, the collateral flap highlights the bailout fatigue that is spreading in northern Europe. The article pointed out that while Finland has responded to criticism by offering to broaden a collateral deal to include other creditors, there have been myriad warnings about the need to avoid excessive collateralization in the Greek bailout.

- Bank of Italy warns on growth: Reuters reported that Ignazio Visco, deputy director-general of the central bank, said that Italy's economy could grow by less than 1% in 2011 and be even weaker in 2012. He also argued that changes to the €45.5B austerity package going through parliament now must include measures to boost growth.

- Yields fall at Italian auction: Reuters noted that the Italian Treasury sold €7.7B of bonds at an auction on Tuesday, with the yield on the benchmark 10-year note falling to 5.2% from the 5.77% Italy had to pay at the end of July, which was the highest in 11 years.

Italy revises unpopular wealth tax plan: The FT said that Italy's center-right coalition plans to radically revise a tax on high incomes that was part of of a €45.5B austerity package passed by the cabinet two weeks ago. The paper said that the move is an attempt by Prime Minister Berlusconi to win back support for his ruling majority. According to the article, the cancellation of the so-called “solidarity contribution” for everyone but national legislators will be balanced with new fiscal measures to combat tax evasion and the reduction of tax breaks for co-operatives.

Newspaper Articles / Headlines

Financial Times
Big pharma keeps paying doctors. The FT reports that twelve companies paid doctors $148M in Q1 vs $437M for all of last year. Eli Lilly (LLY) paid $48M and Pfizer (PFE) paid $42M; the money goes for various purposes that the industry says are ethical, but critics remain unconvinced.
News Corp loses contract due to phone-hacking allegations. The FT reports that New York state comptroller Thomas DiNapoli has chosen not to award a $27M contract to Wireless Generation “in light of the significant ongoing investigations and continuing revelations with respect to News Corporation."
Navios Maritime Holdings CFO says China Cosco's (1919.HK) behavior is not normal. Without making the context of his comments clear, the FT reports that George Achniotis was speaking after China Cosco claimed 26-Aug that its withholding charter payments for ships was just the way that business is done. Cosco signed long-term charters for up to $80K/day in 2008; spot rates were $16,716/day 26-Aug.
International Accounting Standards Board says not all banks, insurers have been writing down their Greek sovereign debt appropriately. In a private letter to the European Securities and Markets Authority, IASB chairman Hans Hoogervorst says the issue is causing "great concern." The letter does not single out any particular offenders, but a person familiar with the correspondence tells the FT that BNP Paribas (BNP.FP) and CNP Assurances (CNP.FP) particularly offended the governing body by using "mark to model" and writing down only 21% of their holdings; the article notes that Royal Bank of Scotland used market prices and arrived at a 51% writedown.
Pemex to take 5% more of Repsol. The FT reports that Pemex, which already owns 5% of Repsol, announced it will buy more shares this week. Pemex plans to form a voting alliance with 20% holder Sacyr-Vallehermosa (SYV.SM); both companies say they are not interested in taking Repsol (REP.SM) over, but they do want Repsol to separate its president and CEO roles.
- FT looks at what makes BP CEO Bob Dudley's head hurt. Breaking no news, the article is a summary of BP's struggles with Alfa-Access-Renova over TNK-BP (TNBP.RU). Observers disagree over whether the newest arbitration proceedings between the parties make buying AAR out more or less likely.

Toshiba (6502.JP), Hitachi (6501.JP), Sony (6758.JP) to merge small LCD operations this year. Without citing sources, the Nikkei reports that a joint company will be set up, held 10% each by the three companies and 70% by Innovation Network Corporation of Japan. An announcement will be made 31-Aug.

Sberbank (SBER.RU) to buy Volksbank International for €585M. A source says an agreement will be signed within days; the story seems to have originated with Reuters.

London Times
APR Energy CEO says company will benefit from increased demand for temporary power providers. In an interview, John Campion tells the Times that APR will benefit from instability in North Africa and the Middle East, since it makes the Alstoms (ALO.FP) and General Electrics (GE) of the world reluctant to install permanent power stations in the region. Formerly Horizon (HZN.LN), APR plans to relist in September.

Los Angeles Times
Theater owners would rather people paid full price. The LA Times reports that theater owners think the more audiences get used to seeing films at a discounted rate offered by a service like Groupon or Living Social, the less they will go to movies that aren't discounted. The article notes that studios are legally prohibited from setting ticket prices, but they have some obvious incentives to offer discounts on tickets to their films.
US Copyright Office suggests Congress abolish cable and satellite statutory licenses. The LA Times reports: The Copyrighht Office proposes that broadcasters negotiate copyright fees individually; the current system allows them to pay a single fee to the Copyright Royalty Tribunal Washington insiders say Congress is not likely to follow the recommendation.

Nissan Motor to halt domestic production of Teana luxury sedan as soon as next year. Sounding largely like a press release, the Nikkei indicates that Japanese production of the car was 26K units in FY10, and it will be moved to the US. The article reiterates that Nissan plans to keep producing 1M units annually in Japan.

South China Morning Post
- Fees make foreign banks uncompetitive selling fund products in ChinaThe SCMP reports that a PwC survey shows that Chinese state-owned banks charge foreign ones 70-75% of the management fee to sell fund products. Local sellers, in contrast, are charged only 50% of the fee.

- ITV, (ITV.LN), Mediaset (MS.IM) talking about forming JV to buy Endemol. Without citing sources, the Telegraph says that part-owner Mediaset is exploring its options for Endemol.

Wall Street Journal
Pfizer's new way forward: Really expensive drugs for very few people. The WSJ reports that medicines that are targeted to populations of only a few thousand people can reach market faster and cheaper than blockbuster drugs made for billions both in terms of patients and intended revenues. And on occasion, as with Roche's (ROG.VX) Herceptin, drugs for sub-groups actually can produce billions in revenues. The article looks at Pfizer's system for identifying experimental drugs that might turn out to be worth pursuing.
- European brewers practice marketing alcohol-free beer in Spain. The WSJ reports that globally, nonalcoholic beer sales are rising, while alcoholic beer sales are falling. Spain consumes more nonalcoholic beer per person than any other country.
Bank of America continues raising capital. The article is a summary, breaking little news. The article notes that the bank's deals with Warren Buffett and to sell part of its stake in China Construction Bank (939.HK) have not brought absolute winner returns, and an analyst observes that everything that BAC sells eventually comes back to haunt its bottom line. A person familiar with the situation says, nonetheless, that mortgage-servicing rights or private-equity assets may be the next assets sold off. The source also says that more than 10K jobs could be restructured away soon after Labor Day.
Western companies helped Moammar Gadhafi's reign of terror. People familiar with the matter tell the WSJ that the regime spoke with companies including Narus (BA), Amesys (BULL.FP), and ZTE Corp (000063.CH) trying to buy technology to help it control Skype (MSFT), YouTube (GOOG), et al. Narus denies that its technology is used in Libya.
WSJ looks at Google CEO Larry Page's first few months on job. The WSJ fails to speak with Page himself. But colleagues tell the WSJ that Page is focused on things he can control, like moving the company into new business areas. He communicates well with employees, and an analyst says he's getting better quickly at talking with investors.
WSJ looks at challenges facing UAW president Bob King in negotiations. The article is a summary, not breaking much news. It notes that there are UAW members that feel King is being too accomodating to the Big Three in the current talks. The only slightly incremental detail seems to be that the contract is likely to include profit-sharing bonuses and performance bonuses for employees.

Hedge funds � preliminary ests reveal the HF industry to have lost ~4%+ in Aug, making it the 4th worst monthly month for performance ever.  Brokers say very few funds have avoided losses in Aug.  Investor preoccupation w/macroeconomic events caught many managers by surprise.  FT    http://on.ft.com/qkTnBe


Argus Research: downgraded EMR
Bank of America Merrill Lynch: upgraded PERY, JNY
Barclays: upgraded AMCX
CapStone: upgraded MIPS
Citi: downgraded AEO
Credit Suisse: downgraded NXG
ISI Group: downgraded CMS
Keefe Bruyette: downgraded CLMS, VRTS
Macquarie: upgraded ESV, NE, RDC; downgraded ATW, DO, RIG
Nomura Securities: upgraded BA
SunTrust: downgraded BOBE, CBRL
Susquehanna: upgraded KBH, NVR, TOL
Ticonderoga: upgraded PHM
Wells Fargo: downgraded LDK


A Tale of Two Vols

The VIX is 32.28 dropping 3.31 (9.3%) on the session. August, generally seen as a sleepy month for the market has been anything but, with the SPX moving +/- 2% or more on 10 occasions and current 20-day realized volatility at 43 (2.5 times greater than the highest level of 30-day vol (~17) experienced this year). At the same time, 30-day implied vol, the market’s volatility forecast for the next 30-days has declined from a high of 37 (30-day implied) on Aug 8th to a current level of 27. At an implied/realized vol ratio of about .62, the market has not shown this much confidence that vol will dampen relative to historical levels since Dec08. With a fairly eventful late September calendar and the vol term structure still inverted (short dated vol > longer dated vol), we offer a few hedging ideas to navigate a potential pick up in late September volatility.

Sell the IWM Sep (9/17 expiry) 75 calls to buy the Sep quarterly (9/30 expiry) 68 puts for $.78
Sell the SPY Sep 126 calls to buy the Sep quarterly 113 puts for $.98
Sell the GLD Sep 180 calls to buy the Sep quarterly 185 calls for $.05
Buy the VIX Oct 40-47.5 call spread for $.85

The Low Spark (& Vol) of High Yield Bonds

After a nearly 5% mtd loss (the largest since November 2008) high yield bonds are looking increasingly cheap relative to equities. A few factors have contributed to a pull-back in the markets appetite for the risky bonds including: 1) Less liquidity 2) The downgrade of US debt by S&P and rising yields on Italian and Spanish debt. Investor's remember from 2008 how quickly the banking system can become infected if credit markets begin to deteriorate. With these issues seemingly baked in, we believe there may be some potential positive catalysts on the horizon. Specifically, the passage of a plan for the EFSF to backstop European bank debt issues (similar to the FDIC's TLGP from a couple yrs ago) could help relieve pressures on Eurozone bank funding and could potentially spark a sharp rally in global debt markets. With that in mind, we turn to the options market in JNK (SPDR/Barclays high-yield bond ETF), not only does short-dated vol look cheap (30-day implied/rlzd= .86) but skew is insanely steep reflecting both negative market perception and a hard-to-borrow market for the underlying.

Look at upside exposure to JNK (ref $38.07) via selling the JNK Oct 34 puts (10.7% otm) to buy the Oct 39 calls (2.44% otm) for a $.10 debit.


What is evident is that virtually all banks are selling below their liquidation values even in some cases where the liquidation value is 100% cash. If the nation�s banks are not worth their liquidation values it means that the nation is about to enter a long-term depression that will destroy the value of all companies. If on the other hand America is not headed for depression, bank stocks are massively oversold. These stocks are oversold: BK, NTRS, C, JPM, BAC, STT, RF, CMA, WFC, KEY, STI, COF, PNC, FITB, MTB, HCBK, HBAN, USB, & BBT.


1.      European confidence  in the economic outlook in August plunged the most since December 2008 as a persistent debt crisis roiled markets and clouded growth prospects across the 17-nation euro region.

2.      Company bond sales have ground to a halt in Europe, with August poised to end without a single offering.

3.      Some European banks haven�t sufficiently written down the value of Greek government bonds and other �distressed sovereign debt� they own, according to the International Accounting Standards Board.

4.      Finland�s demand for collateral on new Greek loans leaves European leaders with two choices: accept the AAA rated nation�s terms and risk the rescue plan, or reject collateral and help bring Finnish euro-skeptics to power.

5.      Sales of covered bonds  surged to the highest since June this month as issuers from Britain to Austria.


1.      Japan Jobless Rate Rises, Retail Sales Drop

2.      Noda Takes Helm and Faces a Short Honeymoon in Drive to Increase Japanese Taxes

3.      Fukushima Station Worker Dies From Acute Leukemia, Tepco Says

n  CHINA� China Faces Upgrade-or-Die Deadline as Labor Supply Dwindles

n  INDIA-- India Proposes Tougher Capital Rules for �Serious� Banks

n  SWEDEN� Swedish Banks May Follow Nordea in Cutting Jobs to Buoy Profit

n  AUSTRALIA� Australia�s Gillard Sees �Tough Days� Ahead for Factory Workers

n  LIBYA� Qaddafi Forces Accused of Possible War Crimes as Family Flees

n  SYRIA-- Syrian security forces killed at least seven people when they opened fire on protesters.

n  TELEVISIONS-- Television prices have fallen so much that a typical set will soon cost less than an AAPL iPad that�s less than a tenth the size.


n  U.S. BANKS-- The number of unprofitable U.S. banks -- about 1,200 -- is decreasing, while return on equity is increasing, according to FDIC.

n  BERNANKE-- FED Chairman Bernanke said �tight� credit for homebuyers and builders is damping the U.S. economic recovery, increasing speculation he will act to ease mortgage rates.

n  OBAMA�President Obama is considering is a version of a tax credit for new hires that could spur the creation of 900K additional jobs at a cost of $30B.

n  SEC-- Thanks to Darcy Flynn, a longtime attorney at the SEC, we now have all the ammunition we need to do what should have been done years ago: terminate the SEC. After raising concerns internally at the SEC last year -- and getting nowhere � Flynn went in a complaint that for at least 17 years the SEC �followed a policy of systematically destroying documents� related to what are known as Matters Under Investigation, or MUIs.

n  BAC�

1.      BAC agreed to sell about half its stake in China Construction Bank for a $3.3B gain as the biggest U.S. lender bolsters capital ahead of new international standards.

2.      FDIC Objects to BofA�s $8.5 Billion Mortgage-Bond Settlement


1.      ArcelorMittal, Peabody Agree to Buy Australia�s Macarthur

2.      ANZ Bank Said to Consider Takeover of Japan�s Aozora Bank

3.      Sina Buys $66.4 Million Stake in China Video Site Tudou


1.      Wheat Declines on Speculation Rain May Help U.S. Winter Sowing

2.      Copper Rises to Three-Week High

3.      Oil Falls From Near Three-Week High

4.      Rubber Climbs to Three-Week High

5.      Oil Stockpiles Rise in Survey on Hurricane Irene

6.      Coffee Rises

7.      Sugar Falls

n  CARREFOUR� the world�s second-largest retailer, may have to drop its annual earnings forecast as a reorganization in its home market of France failed to boost sales growth quickly enough.

n  BMW-- facing higher fuel-efficiency requirements under the Obama administration, is bringing four-cylinder engines back to the U.S. 12 years after it quit offering the slow-selling option.

n  GOOG-- Google Sued by Investor Over �Illegal� Imported Drug Ad Sales

n  MICHAEL VICK-- Quarterback Michael Vick agreed to a six-year contract with the Philadelphia Eagles.The deal may be worth $100MM and guarantees the 31-year-old Vick about $40MM.

n  FUTURES�1201.20, DOWN 6.90.

n  NEW HIGHS: 57.

n  NEW LOWS: 20.



Equity Strategy - B Knapp - Outlook Stabilizing - Mkt's perception risks growing financial sector; sovereign & financial sector concerns will linger, buying downside insurance at extreme levels of sentiment often unattractive risk-reward proposition; equities should edge higher once expensive insurance demand wanes; credit, capital & even rev outlook continuing to improve, albeit somewhat unevenly.

NYSE TICK action was relentlessly positive Monday, leading to an end-of-day Cumulative TICK in the +140,000 range, its highest close since March 12th, 2009. This marks the second big Cumulative TICK reading in the SPX 1200 area. You might recall I questioned whether the last two-month high reading on August 15th would lead to the typical intermediate-term advance. Until today it looked like that was right, but now we have another two-month high Cumulative TICK reading in the same vicinity. The last one did indeed end up leading to a higher SPX ten sessions later, so it�s hard to dismiss this one, particularly given the back-to-back 90% up volume days on the NYSE. I didn�t find a single instance of consecutive 90% up volume days over the last twenty years, but in general a cluster of lopsided up volume days is usually a positive sign for the intermediate-term.

Volume was unusually light for such a strong advance, which is generally a negative sign for the short-term. Given the circumstances it wasn�t unusual to see such low volume, but nonetheless here�s a rundown of the Nasdaq�s performance in the week following a session with a 3%+ gain that coincided with a 5-day low for volume�

Nasdaq Comp +3% and Nasdaq Volume 5-day Low
08/29/11� ???
08/11/11� Nasdaq -4.5% one week later
05/10/10� Nasdaq -0.9% one week later
05/18/09� Nasdaq +1.0% one week later
11/26/08� Nasdaq -5.7% one week later
10/20/08� Nasdaq -14.9% one week later
10/13/08� Nasdaq -4.0% one week later
03/24/08� Nasdaq -2.1% one week later
11/27/02� Nasdaq -5.2% one week later
07/05/02� Nasdaq -5.2% one week later
05/13/02� Nasdaq +3.0% one week later
03/19/01� Nasdaq -1.7% one week later
11/24/00� Nasdaq -8.9% one week later
04/07/00� Nasdaq -25.3% one week later
03/09/00� Nasdaq -6.5% one week later
01/15/99� Nasdaq +0.9% one week later
10/12/98� Nasdaq +6.6% one week later
08/27/90� Nasdaq +0.1% one week later

Out of 17 occurrences, only 2 led to a Nasdaq up more than 1% one week later, while 9 instances led to a drop of at least 4%.

Arie Shapira
     Aug. 30 (Bloomberg) -- WTI-Brent spread may revert to �new
normal� of $4-$6/bbl (has been at ~$25 since mid-Aug.) once
Keystone XL pipeline goes online in 2H 2013, Tudor Pickering
writes in note.
  * Sees rail, storage, smaller pipes preventing WTI from
    �blowing out� until then
  * NOTE: US State Dept. environmental review on 8/26 found
    TransCanada�s $7b Keystone XL pipeline poses �no signifcant
    impacts to most resources� along its route across 6 states;
    link {NSN LQJYPQ6S972X <go>}
  * NOTE: Oil cos. that may be benefiting from widening WTI-
    Brent spread include refiners w/ Mid-Continent & Rocky
    Mountain exposure (ALJ, CVI, DK, HFC, MPC, WNR), E&Ps w/
    intl. & GoM ops (APA, APC, ATPG, CIE, DNR, EXXI, MMR, MUR,
    NBL, SFY, SGY)

Macarthur backs increased $5.11B offer. Peabody Energy (BTU) and ArcelorMittal (MT) have finally received the backing of Macarthur Coal (MACDF.PK) for a takeover of the world's biggest producer of pulverized coking coal after increasing their combined bid from A$15.50 a share to A$16.00, or A$4.8B ($5.11B). The proposal needs the support of Macarthur investors holding 50.1% of shares to succeed, although Arcelor already owns 16%. However, a rival offer may still emerge, with sources saying that Anglo American (AAUKY.PK) is exploring a bid.
Dollar General profit rises 25%, ups guidance. Dollar General's (DG) FQ2 earnings beat expectations as EPS increased 25% to $0.52 and revenue rose 11.2% to $3.58B. Same-store sales climbed 5.9%, representing an acceleration from Q1 and demonstrating the company's "ability to balance the challenges of pricing and rising input costs." Given its H1 results, Dollar General increased the low-end of its FY earnings guidance range to reflect same-store sales growth of 4%-6%. The company now expects total sales to rise 12%-14% and adjusted EPS of $2.22-$2.30.
Shell set to benefit in Iraq gas project. Shell (RDS.A) looks poised to be the big winner in a deal to develop Iraq's huge southern gas and oil fields, with Reuters reporting that BP (BP), Exxon (XOM), China's CNPC and Italy's Eni (E) may have to surrender most of the gas from the fields to a Shell-led processing and export project.
CCB, BofA to sign strategic development deal. China Construction Bank (CICHY.PK) will sign a five-year strategic cooperation agreement with Bank of America (BAC) within the next few days despite BofA yesterday saying it is selling half its 10% stake in the company for over $8B. The divestment follows news of Warren Buffett's cash injection on Thursday, since when BofA has gained $14B in value. However, although shares soared 8.1% on Monday, they were -2.15% premarket. As The Wall Street Journal pointed out, neither the Buffett nor CCB deals are bargains, while one analyst questioned what the bank's asset sales would do for earnings.
FDIC objects to BofA's $8.5B mortgage deal. Despite the doubts, the importance of the capital Bank of America (BAC) is raising was characterized yesterday by the FDIC filing an objection to BofA's proposed $8.5B mortgage settlement with major investors. The FDIC, which owns securities covered by the deal, said it doesn’t have enough information to evaluate the accord. The FDIC joins states and investors in challenging the agreement, adding to doubts about whether it will be approved and the uncertainty about BofA's total mortgage liabilities.
Universal Display shares jump on Panasonic-Idemitsu deal. Universal Display (PANL), which rocketed 85% last week following news of a partnership with Samsung (SSNLF.PK), jumped 9.1% in post-market trading after announcing a licensing deal and material supply agreement with a joint venture owned by Panasonic (PC) and Idemitsu Kosan (IDKOY.PK). Unlike the Samsung deal, the Panasonic Idemitsu agreement includes royalty payments on OLED product sales.
Accounting body criticizes Greek debt writedowns. Some EU financial institutions should have marked down their Greek debt by larger amounts, the International Accounting Standards Board reportedly wrote in a letter to the EU market regulator. The IASB criticized the inconsistency in the methods employed, and without naming names, indicated concerns over the approach taken by BNP Paribas (BNPQY.PK) and insurer CNP Assurances (CNPAF.PK), which used their own models rather than market prices. EU banks took a total hit of €3B ($4.2B), although the writedowns varied from 21%-50%.
Yields fall in Italy debt auction. The ECB's purchase of Spanish and Italian bonds continued to work its magic today as Italy sold €7.7B ($11.1B) of debt, with the yield on its benchmark 10-year note falling to 5.22% from 5.77% at an auction a month ago. The Treasury had planned to sell up to €8B of bonds, and bids totalled €10.4B.
Japan unemployment rises. Japanese economic data has underscored the task facing Yoshihiko Noda, who was today confirmed as Prime Minister by the country's parliament. In July, unemployment rose to 4.7% from 4.6% in June while retail sales fell a monthly 0.3%. Noda would like to raise taxes next fiscal year to help pay for Japan's earthquake reconstruction, but economist Yoshimasa Maruyama reckons the increases may have to wait, as the "economy won’t be strong enough."
CoreLogic explores options, shares surge. Data aggregator CoreLogic (CLGX) is forming an independent committee to explore its strategic options, including a possible spinoff, merger or sale. The panel will also look at cutting costs, and repurchasing debt and common stock. Following the news, shares jumped 17.2% postmarket.
Judge due to decide on Lehman creditor plan. Lehman (LEHMQ.PK) will today ask a bankruptcy judge to allow creditors to vote on its $65B payout plan, which would provide an average of $0.20 on the dollar and up to nearly $0.28 for some groups. If the judge says yes, a vote on the program would take place in November and final court approval could come in December. The plan has the backing of most of Lehman's key creditors, including two groups that hold a combined $100B in claims, although it also faces opposition. 


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