Frontrunning: October 28

  • Budget deficit priorities people: U.S. NSA spied on 60 million Spanish phone calls in a month (Reuters)
  • Stuck in countless scandals, Obama does what he does best: speak. Obama To Speak At Installation Of FBI Director James Comey (TPM)
  • Five killed as car ploughs into crowd in Beijing’s Tiananmen Square (Reuters)
  • U.K. Storm Brings Power Cuts, Snarls Transport in South (BBG)
  • China Signals ‘Unprecedented’ Policy Changes on Agenda at Plenum (BBG)
  • Sandy’s Legacy: Higher Home Prices (WSJ)
  • Merkel Enters Concrete SPD Talks as Finance Post Looms (BBG)
  • Keep arming those Syrian al-qaeda rebels: Car bombs kill scores in Baghdad, in sign of crisis in Iraq (WaPo)
  • J.P. Morgan’s Mortgage Troubles Ran Deep (WSJ)
  • Detroit’s public library contains story of city’s decline (FT)
  • France central bank chief says Robin Hood tax is ‘enormous risk’ (FT)
  • Argentina elections: President loses in Buenos Aires province (BBC)
  • Phone-hacking: trial of Andy Coulson and Rebekah Brooks to begin (Guardian)
  • Euro Jobless Fault Line Festers as Italy Scars Recovery (BBG)
  • Hong Kong Home Prices to Drop as Barclays Joins UBS, Merrill (BBG)
  • JPMorgan Probe Prosecutor Put Away Tomato Racketeer (BBG)


Overnight Media Digest


* The National Security Agency ended a program used to spy on German Chancellor Angela Merkel and a number of other world leaders after an internal Obama administration review started this summer revealed to the White House the existence of the operation, U.S. officials said.

* As it becomes clear that no single leader oversaw the U.S. health law’s online exchange, the accounts of more than a dozen current and former officials show how a disjointed bureaucracy led to the site’s disastrous Oct. 1 launch.

* JPMorgan sidestepped many of the subprime-mortgage problems that bedeviled rivals during the financial crisis. But now its own behavior during the housing boom is coming under close examination.

* Three bond-fund managers won big from making the same bet: buying Greek government bonds at the height of the euro zone debt crisis and holding on. Investors’ perception of Greece has turned around sharply in recent months. Some Greek government-bond prices have more than quadrupled from their nadir in June 2012, as fears of a Greek exit from the euro zone receded.

* During the financial downturn in 2008-2009 Citibank India, like many other banks in the country, struggled with high bad debt on credit cards and personal loans issued in the go-go years. The bank has since sought to be more cautious about whom it lends to. Now, the bank, a unit of Citigroup Inc, is bracing for another set of challenges: new rules from the Indian central bank will require foreign banks to lend a greater portion of their money to agriculture-related activities and small businesses, which can be costly and unprofitable.

* The Federal Reserve has struggled to communicate clearly about its plans for winding down its $85 billion-a-month bond-buying program. Some Fed officials think they’d have an easier time if they established a rule to determine when and how to trim the purchases.

* A growing number of Western brands in China are creating online stores to reach more consumers, adopting a formula that Chinese e-commerce company Alibaba Group Holding Ltd has exploited with much success.

* When Chrysler reports third-quarter results, investors will be looking for fresh data to feed calculations of what the company could be worth if it goes ahead with an initial public offering.



The New York Fed is examining banks’ exposure to a type of mortgage investment vehicle that is vulnerable to a sharp rise in interest rates, underscoring regulators’ growing concerns about the rapid expansion of mortgage real estate investment trusts.

The Bank of England is planning to launch an internal probe into what led mutually-owned Co-operative Group to the 1.5 billion pound ($2.42 billion) capital shortfall that tipped it into the hands of a group of bondholders, including U.S. hedge funds Aurelius Capital and Silver Point Capital.

After China’s largest e-commerce company Alibaba abandoned plans for a more than $60 billion float in Hong Kong, the city’s financial secretary has backed calls for the need to change local listing rules.

U.S. tyre company Titan International is hoping to almost double the size of its European business in a bet on the continent’s rebounding economy.

British carmaker Jaguar Land Rover is set to build its largest and most expensive Range Rover, hoping to continue strong sales growth in emerging markets.



* U.S. Food and Drug Administration’s move to tighten restrictions for prescribing painkillers is a rare victory by lawmakers from states hard hit by prescription drug abuse over well-financed lobbyists for business and patient groups.

* Cruise ships keep growing bigger, and more popular. But the expansion in ship size is worrying safety experts, lawmakers and regulators, who are pushing for more accountability, saying the supersize craze is fraught with potential peril for passengers and crew. After a string of disasters at sea, lawmakers and regulators push for more accountability and question the size of the newest ships.

* The Obama administration has seemed uncertain how to handle reports that the National Security Agency spied on the German chancellor, Angela Merkel, for several years.

* Economists and policy wonks behind the Affordable Care Act worry that the technical problems bedeviling the federal portal could become much more than an inconvenience. If young and healthy applicants decide to put off or give up on buying coverage, rising prices and even a destabilized insurance market could result.

* Social media giant Twitter is entering one of the strongest markets for
initial public offerings in three years, especially in the United States. Investors have shown a growing appetite for initial offerings, eager to take risks in hopes of big rewards when newly public companies’ stocks rise. Retail investors, in particular the very wealthy, are also seeking exposure to soaring stock of new companies.

* Via its Goldman Sachs Foundation, led by Dina Powell, Goldman Sachs Group Inc, which many associate with Wall Street greed and excess, has staked out a position as one of United States’ leading corporate philanthropists.

* Financially struggling media companies are racing to add conferences, festivals and other live events to their business strategy, convinced they can provide a reliable revenue stream and expand the reach of their brands. The number of organizations staging live events has surged in recent years, say publishers and their business partners, and concerns over conflict of interest, though still a delicate issue at some media companies, are largely bygone relics at others.

* As adults turn to mobile devices like tablets, Kindles, and iPhones, their children – even the smallest ones – are doing so as well, according to a new study by Common Sense Media, a San Francisco-based nonprofit organization that examines children’s use of technology, and rates children’s apps, games and websites. Over the last two years, the shift has been drastic. Among children under 2, the survey found, 38 percent had used mobile devices like iPhones, tablets, or Kindles – the same share as children 8 and under who had used such technology in a similar survey two years ago.

* National Oceanic and Atmospheric Administration’s Office of Ocean Exploration and Research and the “Octonauts” producer, Silvergate Media, have signed a letter of intent to develop a formal partnership to raise awareness of ocean exploration and science and advance NOAA’s mission.




* Canada’s surprisingly strong real estate market is leading to heightened scrutiny of the data used to assess sales. The numbers are getting more attention amid debate about just how inflated the market may be.

* Ontario Progressive Conservative Leader Tim Hudak is pledging to cut back the province’s transit-building plans, and would cancel a raft of suburban light rail transits in favor of extending Toronto’s subway system.

Reports in the business section:

* China’s state-owned companies are still keen to invest in Canada’s energy sector, but worry about the slow pace of infrastructure development to connect Western oil and gas producers with Asian markets, Canadian Natural Resources Minister Joe Oliver said.

* Enbridge Inc has given closing arguments in support of the reversal project for its Line 9 oil pipeline between Ontario and Quebec, and in a show of how rancorous the regulatory proceedings became, it was forced to do so in writing.


* The Senate expenses scandal took another turn on Sunday when top Conservatives in the upper chamber said they would consider backing away from a motion to suspend three controversial senators, a move that prompted the Prime Minister’s Office to reaffirm its support for the proposed sanctions.

* The surprising revelation last week that Ottawa is almost $7 billion ahead of schedule for eliminating the deficit is attracting the scrutiny of the budget watchdog. The No. 2 man in the Parliamentary Budget Office says officials have asked the finance department for clarification.




– The Development Research Centre of the State Council, a top think-tank under China’s cabinet, published a so-called “383 report” in which it made proposals for reforms for the coming plenary meeting of the Communist Party of China in November, attracting widespread attention.


– Nearly 1,600 of China’s more than 2,000 listed companies have published their third-quarter earnings results so far, with their combined net profits growing a better-than-expected 12.33 percent due to increased sales, rising profit margins and lower costs.


– Last week’s launch of “loan prime rate”, China’s first benchmark lending rate based on the interest that banks lend to their best clients, has laid a cornerstone for China to build a market-oriented interest rate regime, economists said.


– The suspension of stock initial public offerings (IPOs) for the past year has deprived Chinese brokerages a key source of revenue, greatly hitting their income. Regulators quietly suspended IPOs last November to support the sagging domestic stock market.


– China’s largest private steel company, Shagang Group, plans to move away from steel as its primary business in less than three years amid a government campaign to cut huge steel glut in the country.


– The government’s decision to eliminate some registered capital requirements for establishing new companies reflects a trend to offer Chinese citizens more opportunities to launch their own businesses while tightening supervision of existing firms, a commentary by this mouthpiece of the ruling Communist Party of China said.


Fly On The Wall 7:00 AM Market Snapshot



Bank of Nova Scotia (BNS) upgraded to Outperform from Neutral at Credit Suisse
Bristol-Myers (BMY) upgraded to Overweight from Equal Weight at Morgan Stanley
Choice Hotels (CHH) upgraded to Neutral from Underperform at Credit Suisse
Generac (GNRC) upgraded to Neutral from Sell at Goldman
Patterson-UTI Energy (PTEN) upgraded to Neutral from Sell at Goldman


ARM Holdings (ARMH) downgraded to Hold from Buy at Benchmark Co.
Audience (ADNC) downgraded to Hold from Buy at Benchmark Co.
Basic Energy (BAS) downgraded to Sell from Hold at Wunderlich
Choice Hotels (CHH) downgraded to Underperform from Neutral at RW Baird
Crocs (CROX) downgraded to Neutral from Overweight at Piper Jaffray
DuPont Fabros (DFT) downgraded to Neutral from Outperform at RW Baird
Exelon (EXC) downgraded to Sell from Neutral at Goldman
Glacier Bancorp (GBCI) downgraded to Sector Perform from Outperform at RBC Capital
Graco (GGG) downgraded to Perform from Outperform at Oppenheimer
Host Hotels (HST) downgraded to Market Perform from Outperform at Wells Fargo
Lear (LEA) downgraded to Hold from Buy at Deutsche Bank
Owens Corning (OC) downgraded to Hold from Buy at KeyBanc
Owens Corning (OC) downgraded to Neutral from Buy at BofA/Merrill
PSEG (PEG) downgraded to Sell from Neutral at Goldman
SandRidge Mississippian Trust II (SDR) downgraded to Underperform at RBC Capital
SandRidge Permian Trust (PER) downgraded to Underperform at RBC Capital
Shoe Carnival (SCVL) downgraded to Neutral from Buy at Sterne Agee
Teck Resources (TCK) downgraded to Neutral from Buy at BofA/Merrill
Transocean (RIG) downgraded to Sell from Neutral at Goldman
Trimble Navigation (TRMB) downgraded to Hold from Buy at Needham


Bally Technologies (BYI) initiated with a Neutral at Citigroup
Independence Realty Trust (IRT) initiated with an Outperform at JMP Securities
International Game (IGT) initiated with a Buy at Citigroup
RE/MAX Holdings (RMAX) initiated with a Buy at BofA/Merrill
RE/MAX Holdings (RMAX) initiated with a Neutral at JPMorgan
SolarCity (SCTY) reinstated with an Outperform at Credit Suisse


JPMorgan (JPM) announced $5.1B in settlements with FHFA (FMCC, FNMA)
Liberty Global (LBTYA) to sell Chellomedia to AMC Networks (AMCX) for $1.0B
Rio Tinto (RIO) sold 50.1% interest in Clermont Joint Venture for $1.01
NTT Communications (NTT) to acquire 80% stake in RagingWire Data Centers for $350M
Carlos Slim’s Inmobiliaria Carso disclosed $248M purchase of America Movil (AMX) stock


Companies that beat consensus earnings expectations last night and today include:

CNA Financial (CNA), Haemonetics (HAE), (SOHU), (CYOU), WABCO (WBC), Weyerhaeuser (WY), Seacor Holdings (CKH)

Companies that missed consensus earnings expectations include:

TGC Industries (TGE), Loews (L), Boardwalk Pipeline (BWP), Gulf Island Fabrication (GIFI)

Companies that matched consensus earnings expectations include:

Bridge Bancorp (BDGE)


  • The Fed has struggled to communicate clearly about its plans for winding down its $85B-a-month bond-buying program. Some Fed officials think they’d have an easier time if they established a rule to determine when and how to trim the purchases, the Wall Street Journal reports
  • When Chrysler Group LLC (FIATY) reports Q3 results Wednesday, investors will be looking for new data to feed calculations of what the auto maker could be worth if it goes ahead with an IPO, the Wall Street Journal reports
  • Toyota Motor (TM) retained its lead over GM (GM) and Volkswagen (VLKAY) this year, January-September global sales figures showed, as the Japanese car maker closes in on a record annual profit, Reuters reports
  • Apple’s (AAPL) iPhone sales and revenue forecasts, due to be released today, may offer clues as to whether its low-cost 5C model missed the mark or whether the company can continue its run of smash-hit gadgets, Reuters reports
  • Blackstone Group (BX) President Tony James is reducing his stake in the private-equity firm he helped build. He has sold at least 8.25M shares this year in three transactions, about 20% of the equity he held in Blackstone at the beginning of the year, according to regulatory filings, Bloomberg reports
  • Vivendi (VIVHY), selling assets to refocus on media businesses, is in talks with Lagardere to find an agreement for the ownership structure of their jointly owned TV unit Canal Plus, Bloomberg reports


Icahn’s proposal to Apple (AAPL) should not be indulged
Kohl’s (KSS) could rise 20%
Furmanite (FRM) an attractive investment
Walgreens (WAG) could reach $70 or $80 in the next few years
McDonald’s (MCD) falling forward P/E ratio could continue to drop
Melco Crown (MPEL), MGM China (MCHVF) are ways to play growth in Macau


Boise Cascade (BCC) files to sell 8M shares of common stock for holder


via Zero Hedge Tyler Durden

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