Thursday, September 8, 2011

Morning Note Sept 8th


September 8, 2011




US equity futures are trading near fair value following yesterday's sharp rally prompted by optimism that President Obama may announce tax cuts and a larger than expected stimulus plan of $300B to create jobs in his speech scheduled for 19:00 ET. Markets were also relieved after Germany's constitutional court ruled that the country could participate in the Eurozone's rescue package.



Libor fixings 

- Overnight Libor: Dollar: 0.144% vs prior 0.143% ; Sterling: 0.582% vs prior 0.581%; Euro: 0.829% vs prior 0.832%
- 1-month Libor: Dollar: 0.225% vs prior 0.226% ; Sterling: 0.665% vs prior 0.663%; Euro: 1.290% vs prior 1.290%
- 3-month Libor: Dollar: 0.337% vs prior 0.337% ; Sterling: 0.901% vs prior 0.897%; Euro: 1.479% vs prior 1.478%

API crude inventories reported (2.968M) vs. Reuters (1.9M)

WTI ($0.06) at $89.18

Natural gas +$0.007 at $3.947

Spot Gold +14.10 at $1835.79

10-yr yield 1.9926%
30-yr yield 3.3062%


Asian Markets


Asian markets were mixed today, with some giving up early gains ahead of policy statements coming later. South Korea rose in cautious trade. Japan rose slightly, but Fanuc (6954.JP) fell 3%, typifying machinery makers when July core machinery orders came in below expectations. Tech exporters led Taiwan up slightly. Australia was flat, with most banks and retailers declining after disappointing employment numbers. HSBC (5.HK) rose early, but finished flat after announcing it would cut 3K jobs in Hong Kong; the cuts were part of a previously announced plan to reduce the global workforce by 25K. Japan July core machinery orders (8.2%) m/m vs cons (4.1%). Australia August unemployment 5.3% vs cons 5.1%. August employment (9700) vs cons +11K. The yen is trading at 77.33 to the US dollar.

European Markets

European equity markets trade higher led by the periphery following the Italian Senate passing of the austerity package yesterday. FTSE MIB +1.8%, IBEX35 +2.1%, PSI20 +1.6%, thoughGreece lags the region (1.6%) as banks give back some of yesterday's strong gains. Major indices opened mixed to lower before reversing modest declines and trending higher ahead of BOE and ECB benchmark interest rate decisions and US President Obama's job creation speech due later. BOE leaves benchmark interest rates unchanged at 0.5%. Maintains Quantitative Easing Asset Purchase Programme at £200B. The move was as expected  ECB leaves benchmark interest rates unchanged at 1.5%, ECB's Trichet press conference at 8:30ET, markets expecting a signal to an end to the recent rate tightening cycle and looks for commentary regarding the ECB's peripheral bond buying. France Q2 non-farm payrolls +0.2% q/q vs prior revised +0.5% from +0.4%. Bank of France Aug business sentiment indicator, lowers estimated Q3 GDP increase to +0.1% from +0.2%. The pound and the euro are trading at $1.5943 and $1.4079 respectively


Today's Economic Releases (Eastern Time)

07:00 UK BOE benchmark interest rate decision (Sep)
07:45 Eurozone ECB benchmark interest rate decision (Sep)
08:30 US Initial Jobless Claims (03-Sep); consensus 405K
08:30 US Continuing Claims (27-Aug); consensus 3707K
08:30 US Trade Balance (Jul); consensus ($51.2B)
09:45 US Bloomberg Consumer Comfort (04-Sep); consensus n/a
10:30 US EIA Natural Gas Inventories (02-Sep); consensus n/a
11:00 US DOE Crude Inventories (03-Sep); consensus n/a
15:00 US Consumer Credit (Jul); consensus +$5.6B
19:50 Japan GDP y/y (Q2); consensus n/a
22:00 China CPI (Sep); consensus +6.2%
22:00 China PPI (Aug); consensus +7.2% 

Today's Key Events (Eastern Time)

08:00 AptarGroup Analyst Day
08:00 Gevo Analyst and Investor Day
09:00 Ariba Financial Analyst Day
13:30 Bernanke speaks at The Economic Club of Minnesota Luncheon, MinneapolisMinnesota
14:00 Covidien Investor Meeting
16:30 Dendreon discusses restructuring:             877.548.9590 begin_of_the_skype_highlighting            877.548.9590      end_of_the_skype_highlighting       or             720.545.0037 begin_of_the_skype_highlighting            720.545.0037      end_of_the_skype_highlighting       pc 97761940
17:00 Texas Instruments mid-quarter update, conference call
19:00 President Barack Obama addresses joint session of Congress to present his jobs program
—:— Bank of America Merrill Lynch Canada Mining Conference
—:— Barclays Capital Back-To-School Consumer Conference
—:— Barclays Capital CEO Energy-Power Conference
—:— Barrington Research Growth Conference (One on One)
—:— Citigroup Technology Conference
—:— Credit Suisse Automotive and Transportation Conference
—:— Dahlman Rose & Company Global Transportation Conference
—:— Daiwa Capital Markets' Asian & Latin American ADR Conference
—:— Deutsche Bank Global Emerging Markets One-on-One Conference
—:— Deutsche Bank TMT Conference
—:— European Photovoltaic Industry Association PV-SEC
—:— FDA Cardiovascular and Renal Drugs Advisory Committee discusses JNJ's NDA for Xarelto (rivaroxaban) tablets for prevention of stroke and systemic embolism
—:— Gabelli Aircraft Supplier Conference
—:— Global Hunter Securities with Silvermex Resources
—:— Global Hunter Securities with The Pep Boys - Manny, Moe & Jack
—:— Goldman Sachs European Medtech and Healthcare Services Conference
—:— Goldmans Sachs Retailing Conference
—:— J.P. Morgan LED General Lighting Symposium
—:— Kaufman Bros. Investor Conference
—:— MEDTECH China 2011
—:— M-real Corp Capital Market’s Day
—:— Robert Baird Healthcare Conference
—:— Scotia Capital Financials Summit
—:— Shale Gas Insight 2011 Conference
—:— Showcase Ontario 2011
—:— Stifel Nicolaus Healthcare Conference
—:— William Blair Emerging Growth Stock Conference 


Company Specific News

Earnings
HOV (Hovnanian reports Q3 EPS ($0.47) vs Reuters ($0.50); Reports Q3: Revenues $285.60M vs Reuters $291.70M)
HWD (Harry Winston Diamond reports Q2 EPS $0.12; Reports Q2: EPS includes a net foreign exchange gain of $1.9M, and it is unclear if it is comparable to Reuters $0.13; Revenues $222.40M vs Reuters $168.00M)
MTRX (Matrix Service reports Q4 EPS $0.21 vs Reuters $0.22; Reports Q4: Revenues $163.60M vs Reuters $175.90M)
MW (Men's Wearhouse (MW) reports Q2 EPS $1.11 ex-items vs Reuters $1.04)
PLL (Pall Corp reports preliminary Q4 EPS $0.82 including items; Q4: Pro forma EPS were $0.76 ex-items (restructuring and other charges and items impacting interest and provision for income taxes); unclear which, if either is comparable to Reuters $0.88, Revenue $780.4M vs Reuters $758.79M)
SFD (Smithfield Foods reports Q1 EPS $0.69 ex-items vs Reuters $0.67; Reports Q1: Revenues $3.09B vs Reuters $3.15B)
SWHC (Smith & Wesson reports Q1 EPS $0.01; Reports Q1: $0.01 figure includes $0.01 in costs and was also negatively impacted by $0.03 per share related to the security solutions division. Reuters consensus is $0.00)
Revenues $99.20M vs Reuters $95.10M)
TITN (Titan Machinery reports Q2 EPS $0.30 vs Reuters $0.26; Reports Q2:
Revenues $310.80M vs Reuters $293.00M)

M&A
CALP (PerkinElmer to acquire Caliper Life Sciences (CALP) for $600M in cash)

Offerings
CLMT (Calumet Specialty Products announces 11M common unit secondary offering through Barclays, BoA/ML, Deutsche, and JP Morgan)
DG (Dollar General files 25M share secondary offering for holders through Citi, Goldman and KKR)
GNC (GNC Holdings stockholders to offer 23M shares through Goldman, J.P. Morgan, Deutsche Bank and Morgan Stanley)
RPTP (Raptor Pharmaceutical announces secondary offering of indeterminate amount through JMP Securities)

Other News
Central banks, rates and FX 
- Fed prepares to act: The WSJ's Jon Hilsenrath had another article on the Fed today. He reported that Fed officials are considering three unconventional steps to help revive the economic recovery and seem increasingly inclined to adopt at least one as they prepare to meet this month. Hilsenrath said that one step getting considerable attention both inside and outside the Fed would extend the duration of the Fed's portfolio (ie a twist operation). He added that a second step that is getting mixed reviews internally would be to reduce or eliminate the 0.25% interest rate the Fed is currently paying on reserves. A third step would involve language tweaks to make their economic objectives and plans for interest rates more clear.
- Fed policy makers prepare for action this month: Bloomberg said that Fed policy makers are laying the groundwork for further action at this month's meeting amid concerns that US economic growth could stall. The article noted that economists at Wells Fargo, Barclays and Goldman have all said that the Fed may decide to replace some of the short-term securities in its $1.65T portfolio with long-term debt in a bid to lower rates on everything from mortgages to car loans. Bloomberg pointed out that there have also been calls for the Fed to provide additional stimulus via conditional statements related to employment and inflation.
- ECB tipped for November rate cut: The FT noted that financial markets are forecasting interest rate cuts in the Eurozone as early as November, marking a sharp reversal of monetary policy expectations. The article said that Eonia rates, which show the rates that banks are expected to charge each other for lending in euros at the time of the monthly ECB rate-setting meetings over the next 12 months, are forecast to fall by 23 bp by the November meeting, implying a 92% probability of a 25 bp rate cut.
- Asian central banks hold rates amid threat of export slowdown: Bloomberg reported that three central banks in Asia refrained from raising borrowing costs today even as the region contends with elevated inflation rates. The article noted that central banks in KoreaIndonesia and the Philippines have been forced to the sidelines by the threat of of a slump in exports as the global outlook sours. Bloomberg pointed out that economic data in the region today showed an unexpected drop in Australian payrolls and the biggest decline in machinery orders in Japan in 10 months, fitting with recent evidence of dampened confidence among consumers from Europe to the US.
- Australian employers unexpectedly cut workers:Bloomberg noted that Australian employers unexpectedly cut workers for a second month in August, sending the Australian dollar and bond yields lower as investors added to bets that the central bank will cut interest rates. The article pointed out that with the pickup in easing expectations, the Aussie is headed for its first weekly decline in a month, while bond yields are on pace to fall for the first time in three weeks. Recall that the RBA increased rates by 175 bp from October 2009 through November 2010.
US plays down prospects of coordinated FX action: The FT reported that the US has played down the prospects of coordinated action to guide FX rates following the SNB's surprise decision to intervene against the franc, saying the Swiss situation was a "unique case". The article cited comments from a senior US Treasury officials to reporters on Wednesday ahead of the G7 meeting this Friday. The official noted that “Switzerland has a quite unique set of challenges,” adding that “It is situated in the middle of Europe and has been quite disproportionately affected by the financial stresses in Europe.”
Norway's krone may see elevated safe haven status: Bloomberg reported that Deutsche Bank, the world's biggest currency trader, said that Norway's krone may rally further as investors looking for protection against Europe's deepening debt crisis turn to one of the few safe haven markets that is not overvalued. The article cited comments from Henrik Gullberg, a London-based strategist at Deutsche Bank, who said that amid a desperate need for safe havens following the recent move by the SNB to cap the franc, the krone is an obvious candidate.

Eurozone sovereign debt crisis 
- Greek backsliding sparks euro exit talk: Reuters reported that concerns about Greece's inability to meet fiscal targets that are a condition for its next bailout are reaching a breaking point inBerlin and other European capitals, with some senior politicians now talking openly about the possibility of Athens exiting the Eurozone. The article noted that Horst Seehofer, the head of the Bavarian Christian Social Union (CSU), was the first prominent figure in Germany to suggest publicly that Greece might eventually be forced to leave the Eurozone in an interview with the the Bild newspaper on Wednesday. However, Reuters cited sources who said that he was expressing what many lawmakers and ministers in Berlin have been saying behind closed doors for weeks.
- Dutch PM calls for Europe budget tsar: The FT noted that Dutch Prime Minister Mark Rutte said that the EU should appoint a budget tsar with powers to dictate taxes and spending in Eurozone countries and who could ultimately decide whether countries should be kicked out of the Eurozone. Rutte and the government's finance minister, Jan Kees de Jager, said in an opinion piece in the paper that the new “commissioner for budgetary discipline” should be given the authority to impose a gradually more painful series of penalties on countries that will not pursue fiscal discipline, including the withholding of EU development funds. They argued that “countries that do not want to submit to this regime can choose to leave the Eurozone,” adding that "in the future, the ultimate sanction can be to force countries to leave the euro".
- Italian austerity plan clears Senate hurdle: The WSJ noted that the Italian government's multi-billion-euro austerity package was approved by the Senate on Wednesday, clearing a major hurdle in the country's efforts to restore credibility with investors. According to the article, the approval of the package in a 165-to-141 vote makes it more likely that the major tenets of the plan will survive, paving the way for the measures to face a final vote in the coming days in the lower house of Parliament, where Berlusconi's majority is thin. Recall that the latest version of the package is expected to generate more than €50B in savings through a mix of new taxes, pension changes and cuts to public spending.


Newspaper Articles / Headlines

Business Insider
- Jerry Yang may not have been lying, but Yahoo! is certainly for sale. A source familiar with the company's board proceedings tells Business Insider that a board committee looking at strategic options has done a fair amount of work. The article notes that Yang was famously against selling the company to Microsoft (MSFT), and he may intend to oppose selling it to anyone else, either.

China Daily
Acer (2353.TT) is taking orders from Hewlett-Packard. The China Times reports that rumors say: Since HP announced its plan to spin-off its PC business, it is losing market share to competitors, and Acer is benefiting most. In the first week of September, Acer received orders for 1.2-1.4M units, already matching its July sales.

Digitimes
iPhone 5 supply chain ramps up production. Industry sources tell DigiTimes that shipments are expected to be 5-6M units this month and more than 22M units in Q4; shipments of iPhone 4s and CDMA iPhones will decline in Q4 to clear up the capacity for the iPhone 5s.

Economic Times
- IBM signs $1B deal extending its outsourcing for Vodafone Essar until 2017

Estado de Sao Paolo
Companhia Siderurgica (CSN) makes offer for 26% of Usiminas. Without citing its source, the newspaper reports that Benjamin Steinbuch, CSN's owner, has resolved to make an offer for 26% of Usiminas. According to the newspaper which does not cite its source, the offer was made weeks ago and no amount was mentioned, the government is also said to be involved in the sales process. The newspaper also adds that construction group Camargo CorrĂȘa (CCIM3.BZ) and industrial group Votorantim part of Usiminas' controlling bloc did not say if the accepted to talk to CSN, but have warned Nippon Steel (5401.JP), who is also part of the controliing bloc, that nothing is ruled out at this stage.

Financial Times
Royal Dutch Shell looks to expand in VietnamA company executive tells the FT that Shell: hopes to sign an MoU with the country to cooperate in areas like LNG; helping build Vietnam's first LNG terminal is an option was in talks about acquiring 25-30% of Petec until the government decided not to allow foreign investors to take a stake in the fuel importer/distributor may bid for new oil exploration licenses in the country.
360buy.com takes first step toward possible 2012 IPO. A person close to the situation tells the FT, which has previously reported that the Chinese ecommerce company is considering listing in the US, that the board has not yet decided to go public. But the source says that the company is meeting with bankers next week, and the company may seek to raise on the order of $5B.

FTD
- EBA Executive Director Adam Farkas says availability of capital, the ability of banks to finance medium and long term and short-term borrowing money, are cause for concern, no risk and no emergency though he adds. The Executive Director of the London-based EBA, Adam Farkas said in an interview with the Financial Times Germany, the he is aware that the supply of liquidity for a number of institutions is difficult at present. "The availability of capital, the ability of banks to finance medium and long term and short-term borrowing money, are cause for concern," he said to the newspaper and added "But it does not pose a risk, and no emergency."

Globe and Mail
EnCana to cut 2012 capex if gas prices remain "stubbornly low". The Globe and Mail reports that CEO Randy Eresman made the comments at an investor conference yesterday morning

Guardian
Transport Secretary Philip Hammond tells MPs that government can hold new bidding for Thameslink. The Guardian reports that Hammond warned MPs yesterday (7-Sep in Europe) that rebidding would involve "very significant" consequences. A senior Brussels official says that the UK would probably need to pay Siemens (SIE.GR) compensation.

Investor Daily
- British American Tobacco sells part of its stake in Bentoel Internasional (RMBA.IJ). Investor Daily reports that yesterday (7-Sep in Asia), Bentoel Internasional announced that 25-Aug, British American Tobacco sold "as much as 970M shares" to UBS (UBSN.VX) for IDR737.61B (£54.0M). The article says that British American Tobacco still holds 85.6% of the company, or 6.19B shares.

Korea Economic Daily
Samsung Electronics (005930.KS), Microsoft (MSFT) to tie up on tablet computer. Seemingly citing an industry official, the KED reminds readers that Samsung tablets have thus far used Android.

Les Echos
- Vivendi (VIV.FP) and France Telecom (FTE.FP) should be among the French companies most affected by new tax legislation. The newspaper reports that Vivendi and France Telecom should be among the French companies most affected by new tax legislation passed by the government. After the adoption yesterday by the National Assembly of the abolition of worldwide profits (BMC) this year, and the cap losses carried forward for a company authorized to 60% of its profit, the first estimates begin to circulate.
France Telecom has already provided institutional investors with the impact of these measures. Initially, FTE management believed it would not have pay taxes in France this year, pay the tax from €300 to 500M in 2012 and €1.5B in 2013. With the news law the company now thinks that it will have to pay a tax of between €400 and 600M this year and all subsequent years. In the long term, the measure is somewhat less painful for the group's finances as the tax losses above the limit can be carried forward next year, reducing taxes. France Telecom's cash will be affected, however, in 2011. For Vivendi, according to some analysts, the cumulative impact of the abolition of BMC and cap losses carried forward for the group may vary between €260 and 400M in a full year in 2012. The impact should be visible this year for the company, members who voted for an amendment that the measure be applied immediately, including the current agreements with the state, such as that enjoyed by Vivendi until 2011 .

Los Angeles Times
LA Times looks at soaring cost of rights to broadcast sporting events. The article is a summary, breaking no news. Distributors fear that customers will be driven away if the price keeps rising, since that cost is, of course, ultimately passed on to the viewer.
Amazon.comCalifornia reach tentative deal on state sales taxes. The LA Times reports that the agreement grants Amazon a one-year reprieve (to next September) in collecting taxes, in return for which Amazon will stop trying to overturn the law requiring that taxes be collected by out-of-state etailers. Gov Jerry Brown's position on the agreement is unclear.

Nikkei
- NTT DoCoMo to introduce flat-rate plan for new wireless service Xi. Without citing sources, the Nikkei reports that the plan will be announced today (8-Sep in Asia). Users can choose to remain on current plans, which are tiered by usage.
Ranbaxy to sell generic Lipitor in US this year. In an interview, chairman Tsutomu Une tells the Nikkei that despite speculation to the contrary, the company has not changed its schedule to put the drug to the market. Une also says that he thinks an FDA fine for quality-control issues is likely to be less than $1B, and Ranbaxy has no intention of selling its Lipitor marketing rights to anyone else.

Securities Times
China is not going to cut required reserved ratio yet. In an editorial that notes that a rumored reserve-ratio cut stimulated the market yesterday, the Securities Times says: It is impossible that the People's Bank of China would make a decision to change the direction of its monetary policy overnight, considering the complicated procedures of its decision making. The PBOC just launched a new policy at the end of August, which suggests its intent for stable monetary policy, neither austere nor expansionary.
Above all, the central bank is currently facing a dilemma: If the monetary policy abruptly changes to expansionary from stringent, it will signal a serious deficiency of liquidity in the market. But even though some private enterprises are in less-than-perfect condition, the dominating state-owned enterprises and banks are still healthy, and the systematic risk is not very high. In addition, the PBOC has other measures it can take to inject liquidity in the market.

Telecom Paper
- T-Mobile (DTE.GR), Orange (FTE.FP) to combine mobile networks in Austria, says APA, citing sources close to the negotiations

Wall Street Journal
- Fed officials seem increasingly inclined to act. The WSJ's Jon Hilsenrath writes that Fed officials are considering three possible steps and are increasingly inclined to take at least one at their Sep 20-21 FOMC meeting. The three steps are: Hilsenrath writes that "one step getting considerable attention inside and outside the Fed would shift the central bank's portfolio of government bonds so that it holds more long-term securities and fewer short-term securities", sometimes referred to as "operation twist"
Reducing or eliminating the 0.25% interest rate paid on excess reserves
Verbally making the Fed's economic objectives and plans for interest rates more clear. The article also noted that a third round of Treasury purchases by the Fed "remains an option, but doesn't have strong advocates inside the Fed now".
Don't hold your breath for Bank of America to spin off Merrill Lynch. A "Heard on the Street" column says that the fact that Goldman Sachs (GS) and Morgan Stanley (MS) trade below book value indicates that investment houses operating on their own aren't scoring points with investors, which BAC CEO Brian Moynihan seems to have realized.


Research

Atlantic Equities: upgraded ACI
Auriga: upgrade CSCO
Bank of America: downgraded AEP
BMO Capital: Amgen (AMGN) initiated outperform with $67 target
Ariad Pharmaceuticals (ARIA) initiated outperform with $18 target
Celgene (CELG) initiated outperform with $90 target
Cardiome Pharma (CRME) initiated outperform with $11 target
Halozyme Therapeutics (HALO) initiated outperform with $13 target
Human Genome (HGSI) initiated outperform with $28 target
ISIS Pharmaceuticals (ISIS) initiated outperform with $15 target
Regeneron Pharmaceuticals (REGN) initiated outperform with $78 target
Rigel Pharmaceuticals (RIGL) initiated outperform with $17 target
United Therapeutics (UTHR) initiated outperform with $54 target
Amylin Pharmaceuticals (AMLN) initiated market perform with $12 target
Arena Pharmaceuticals (ARNA) initiated market perform with $1 target
Array Biopharma (ARRY) initiated market perform with $2.50 target
Gilead Sciences (GILD) initiated market perform with $40 target
NPS Pharmaceuticals (NPSP) initiated market perform with $8 target
Onyx Pharmaceuticals (ONXX) initiated market perform with $34 target
Synta Pharmaceuticals (SNTA) initiated market perform with $4 target
Ziopharm Oncology (ZIOP) initiated market perform with $6 target
Biogen Idec (BIIB) initiated underperform with $74 target
Genomic Health (GHDX) initiated underperform with $15 target
Canaccord Adams: upgraded ASTE
Deutsche Bank: upgraded POWI
JP Morgan: upgraded NCR
Morgan Stanley: upgraded SWY
Oppenheimer: downgraded SOMX
Piper Jaffray: upgraded TLB
UBS: upgraded DVN, SWN, XOM, ENP; downgraded TIN, KWK
Wells Fargo: upgraded DRI
Wunderlich: downgraded NEE


Options

WSJ’s Hilsenrath says FOMC will either do Operation Twist, emphasize rates to remain low, or reduce interest rates on excess reserves. We would not be surprised to see all 3 as this article is likely going to be used by the Fed to 1) gauge market sentiment; 2) set the expectation that only 1 will be announced and then ‘surprise’ with all 3. We do see some upside risk into the FOMC meeting but think any strength will be short-lived.

We continue to like put-spread collars (sell calls to buy put spreads) for protection given the steep skew/high vol environment.



Yahoo's board fired Bartz over a number of factors, WSJ reports -
Yahoo's (YHOO) ouster of CEO Carol Bartz was the res
Yahoo's board fired Bartz over a number of factors, WSJ reports - Yahoo's (YHOO)
ouster of CEO Carol Bartz was the res

Yahoo's board fired Bartz over a number of factors, WSJ reports - Yahoo's
(YHOO) ouster of CEO Carol Bartz was the result of number of board of
directors conference calls and a review of Yahoo's position and assets, which
concluded that Bartz wasn't meeting 2011 goals set for her earlier in the
year, reports the Wall Street Journal.   [Reference
Link]:[http://online.wsj.com/article/SB10001424053111904103404576556884092050342
***  end of story  ***ws_us_business

WHAT TO WATCH: Obama will address Congress on a $300 billion plan that includes tax cuts, infrastructure spending and direct aid to state and local governments, 7 p.m. Bernanke will discuss the U.S. economic outlook, 1:30 p.m. The Fed is considering three unconventional steps to boost the economy ahead of a meeting this month, the Wall Street Journal said. The ECB will likely resist calls to cut its key rate and may opt instead to increase the supply of cash to euro-area banks, 7:45 a.m.; Trichet press conference, 8:30 a.m. Chinese officials told EU business executives that the yuan will achieve �full convertibility� by 2015. The Bank of England left its benchmark rate unchanged and maintained its bond-purchase program at 200 billion pounds


Trading color � while the % moves were impressive, volumes were pretty anemic all day.  There was some real buy demand but the lack of liquidity helped exacerbate the upward pressure applied to prices.  There wasn�t a ton of short covering and it really seems like a lack of sellers helped most today.  It was pretty evenly split between vanillas and HFs.  Technically, we are up through the most immediate resistance zone at 1185 and now people are watching 1196 (which is approximately where the S&P ended).  Support areas are 1174, 1164, and 1153 (this is for cash). 
jpm



ECONOMICS: Trade deficit, 8:30 a.m. Jobless claims, 8:30 a.m. Consumer credit, 3 p.m. Peru�s overnight rate, 7 p.m. Central banks in South Korea, Indonesia, Malaysia and the Philippines kept rates unchanged. Serbia�s central bank cut its benchmark by half a point. The OECD slashed its growth forecasts for the U.S. and Japan.


Three Controversies (Part II): Streaming
Accounting
Netflix remains one of the most contrversial names we cover. This note is the
second in a 3-part series we are publishing on the key investment controveries.

Event: In this report, we provide an overview of how streaming content
accounting works and address questions in regards to Netflix�s streaming
accounting. More importantly, we attempt to get to the heart of the issue,
which is �what happens to Netflix�s operating margins, free cash flow,
and financial flexibility as content commitments become due.�

Investment Case: NFLX has roughly $3 billion in content commitments that
will be expensed via the subscription cost expense line over time. We have
performed a bottoms up analysis on upcoming content deals and modeled
how each deal will flow through the income statement over time. Ultimately,
our current content cost estimates are well above the bottoms up analysis,
as we include new content deals over time, implying these commitments are
more than accounted for in our model.

Moreover, assuming Netflix can continue to grow subs and revenue to our
expectations, we do not believe NFLX will need to raise capital to finance its
programming commitments. In addition, our projections suggest that NFLX�s
operating margins and FCF should grow over time.

Overall, we are comfortable with Netflix�s accounting for streaming.
Treatment of off-balance sheet programming commitments is similar to the
methodology used by media companies. The increase in payables is a
natural function of a growing amount and longer payment terms for
streaming content (about a year) vs. DVD�s (30-60 days).

Maintain Outperform and $310 target price. NFLX is trading at 24x �12 P/E. @ cs







GLOBAL INFLATION�
1. The global inflation scare is ending. As faltering economic growth drags down food and energy costs, consumer prices are climbing more slowly after jumping earlier this year. It is allowing central banks to keep monetary policy loose to bolster global growth under threat from Europe�s fiscal crisis and the U.S. slowdown.
2. UN FAO Food Index Little Changed at 231 Points in August; World Cereals Output to Rise Less Than Expected in 2011
3. The Organization for Economic Cooperation and Development slashed its growth forecasts for the U.S. and Japan and said central banks around the world should be ready to ease monetary policy if economies weaken further.
? U.S.A.�
1. FED policy makers are laying the groundwork for further action at this month�s meeting, warning that U.S. economic growth could stall, producing lasting stagnation in the job market.
2. President Obama tonight will lay out a choice for voters as much as a plan for lawmakers. Obama will propose a more than $300B stimulus plan as job growth stalls and the unemployment rate hovers above 9%.
3. The bond-market rebounded yesterday with issuance reaching $17.1B, the busiest day since May, as demand for higher-rated debt propels a snapback in offerings.
4. The S&P 500 Index no longer has to rise above its high for the year to exceed the average year-end projection of Wall Street strategists.
5. Texas Governor Perry�s first appearance in a Republican presidential debate solidified what polls are already showing: Perry and Romney  have emerged as the two frontrunners.
6. Governor Perry called Social Security a �Ponzi scheme,� questioned the science behind global warming.
7. Fed Chairman  Bernanke scheduled to speak in Minnesota today on the economic outlook, 1:30 p.m. EST
8. Congress�s deficit-reduction super-committee holds first meeting today in effort to find $1.5t in cuts
? ECB� ECB Keeps Rates on Hold as Worsening Crisis Damps Growth Outlook
? BOE-- Bank of England  officials resisted calls to extend economic stimulus as they attempt to navigate a path between accelerating inflation and a faltering recovery.
? IRELAND�
1. Ireland�s National Treasury Management Agency reined in its liquidity facilities  for short- dated bonds to clamp down on short-sellers.
2. Irish Bank Debt �Screaming Buy� as Crisis Worsens
? ASIA-- Three central banks in Asia held off from raising borrowing costs today even as the region contends with elevated inflation rates.
? CHINA�
1. Chinese officials told EU business executives that the yuan will achieve �full convertibility� by 2015.
2. China Puts Showing No Faith in Predictions for Rebound. The price for three-month bearish put contracts to sell the Hang Seng Index rose to 1.41 times the cost of bullish calls on Sept. 1, the most since March 2007.
3. Chinese automakers may post record exports this year.
4. China Premier Orders �Thorough� Probe Into Conoco Oil Spills
5. China Yurun Falls to Two-Year Low on Meat Additives Report
? ITALY� Berlusconi Austerity Plan Passes Italian Senate as ECB Meets
? ARGENTINA-- Anses, the second-biggest holder of Argentine government debt, is cutting its holdings to the lowest in three years as it increases investments in roads, ports and other infrastructure.
? PHILIPPINES� Philippine Central Bank Holds Benchmark Interest Rate at 4.5%
? BRAZIL� Foreign investors are turning bearish on the Brazilian real for the first time in eight months
? LIBYA� Libyan Fighters Tighten Noose Around Qaddafi Holdout Towns
? MADOFF-- The trustee for Bernard Madoff Investment isn�t willing to give any slack to customers asking the U.S. Court of Appeals in Manhattan to take a second look at an Aug. 16 ruling.
? STORM WATCH-- Tropical Storm Nate , one of three active weather systems in the Atlantic basin, was forecast to grow stronger as it moves erratically in Mexico�s Bay of Campeche.







MORTGAGES� Banks that agreed to compensate victims of mishandled foreclosures under a settlement  with regulators won�t be making payments before next year and they could be delayed until 2013. Fourteen banks signed consent orders with federal regulators in April in which they agreed to hire independent consultants to identify errors and abuses, such as �robo-signing� documents, and recommend remedies.
? BAC-- Moynihan Tries to Keep BofA Intact as Mortgage Loans Fall Apart
? JPM-- One-Man Lobby Dimon Presses Washington to Ease Bank Regulations
? NOMURA-- Nomura Sees Most Japan IPOs in Three Years on Quake Rebound
? HSBC-- HSBC Deal With Madoff Feeder Fund Investors Rejected by Judge
? COMMODITIES�
1. World Food Prices to Remain Elevated
2. Corn Crop Shrinking; Corn Futures Advance
3. Gold Rebounds
4. Crude Oil Drops
5. Cotton Climbs Most in Two Months
6. Cocoa Slides
? AAPL-- HTC, Asia�s second-biggest smartphone maker, is using nine patents bought from GOOG last week to pursue new infringement claims against APPL.
? YHOO -- Bartz Could Get About $10 Million in Compensation After Firing
? WTW-- Weight Watchers Scores Points Over Local Doctors in New Study







Upgrading gold 


The following is a summary of our full-length report on this topic, also dated today. 




�  Input: Strengthening fundamentals
Ongoing strong physical gold demand from India and China, constrained scrap supply and net central bank purchasing have combined to generate a profound improvement in gold fundamentals during 2011.
�  Input: Debt crisis adds glister
At the same time, the ongoing deterioration in the European debt crisis, as well as the downturn in global growth, have raised the likelihood of reflationary or even inflationary policy action.
�  Output: Gold price upgrades
We have raised our gold forecasts to US$1665/oz (from US$1500/oz) for 2011, to US$2075/oz (US$1380) for 2012 and to US$1725/oz (US$1200) for 2013. We have raised our long term price to US$1100/oz (US$934) following our analysis of cost inflation in prospective new mine capacity.
�  Output: After the derating
Gold equities have seen a significant derating relative to gold in recent months, on the back of cost inflation, a lack of M&A and production disappointments. We now believe that a moderation of those concerns will allow our 10 favoured global gold stocks to at least perform in line, and potentially outperform, the gold price. Our favoured names are European Goldfields, Petrapavlosk, Polyus International, Goldcorp, Newmont, Osisko, Iamgold, Perseus, Anglogold and Zijin Mining A, all Buy Rated.





U.S. INITIAL JOBLESS CLAIMS ROSE 2,000 TO 414,000 LAST WEEK 






TRICHET SAYS `DOWNSIDE RISKS' TO EURO AREA HAVE INTENSIFIED






Trader Commentary:
Crude -..10 to 89.25 as Libya's production may come on line as soon as two weeks...yesterday as the E&P index (EPX) broke out above the 432 level ( 38% Fibonacci level) long term players came after APA APC CHK.  Worth noting Wall Street strategists have taken down estimates of fair value for the S&P - index about 20% under-valued & this large spread is typically +.
Today:      President Obama to address joint session of Congress, Bernanke will
speak in Minnesota
      EIA natgas storage 10:30am, DoE weekly inventories 11am
      Barclays Energy Conf. in NYC (Day 3 of 3). JPMorgan LED Symposium in NYC

KWK (downgraded away) worth noting in their presentation the company projected cash flow shortfall in '11, assumes it sells its remaining BreitBurn (BBEP) units (~$150 million market value).  $80 million cash flow shortfall in '11 & w/o the sale, shortfall is $230 million vs. CFFO of $320 million.

WPRT +19% yesterday we are out + this AM.  Shell Teaming w/ WPRT brings in another major deep pocketed producer who wants to develop this market.  Expect that they will be expanding their program into the US & into rail, mining and marine.  Last night Cramer had on CEO David Demers (see full note)

ADES (see full note) yest. they announced plans to expand their refined coal business to 20 new units that can product in excess of 30 million tons per year- our model assumes 22 million new tons, if they can do all 30 million tons that would push stock considerably higher.

Europe solar firm cutting orders on loan concerns Solar module and system firms in Europe have been tightening inventory control and carefully issuing procurement orders beginning in the third quarter, according to industry sources. The main reasons are anticipation for further price decreases and difficulties in obtaining loans from financial institutions.
http://www.digitimes.com/news/a20110908PD201.html

New IEA Chief Says No Need for Another Oil Stockpile Release

Marathon Oil Resumes Production in the Gulf of Mexico @ laza

Goldman Sachs price target lowered to $174 from $205 at Susquehan
na - Susquehanna lowered its price target on Goldman
Goldman Sachs price target lowered to $174 from $205 at Susquehanna - Susquehann
a lowered its price target on Goldman

Goldman Sachs price target lowered to $174 from $205 at Susquehanna -
Susquehanna lowered its price target on Goldman Sachs based on the weaker
economic environment.  The firm maintains its Positive rating.
***  end of story  ***











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 No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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