Call Buying In Tech Picks Up For Q4
Options traders are expecting the usual 4th quarter rally in tech stocks. The IB options desk reports some unusual activity in tech names:
XLK – Technology Select Sector SPDR – Option traders devoured call options on the tech-sector exchange-traded fund in anticipation of further upside potential for the stock by expiration in December. Shares of the XLK are currently trading slightly higher by less than 0.5% this morning to stand at $20.77. Investors purchased approximately 42,000 calls at the December 22 strike by shelling out an average premium of 45 cents per contract. The heavy call volume at the December 22 strike evokes a sense of déjà vu given that a chunk of 35,000 calls were picked up at the same strike for about 43 cents each last week on September 11, 2009. Investors long the calls are hoping shares of the fund experience at least an 8% rally by expiration so they may breakeven at a price of $22.45. We note that shares of the XLK have traded beneath the breakeven point since September 2, 2008.
Source: IB
* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.
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By Oliver Biggadike and Ye Xie
Sept. 16 (Bloomberg) — The dollar declined to the weakest level versus the euro in almost a year as an increase in America’s industrial output encouraged investors to sell the U.S. currency and buy higher-yielding assets.
New Zealand’s currency posted the biggest gains among 16 counterparts measured against the yen and dollar as investors were lured to a three-month deposit rate almost 10 times higher than in the U.S. So-called carry trades funded with equal amounts of dollars and yen gained 1.3 percent this week, according to data compiled by Bloomberg.
“We are in an environment that is constructive for growth,” said Lauren Rosborough, a currency strategist in London at Westpac Banking Corp. “It is positive for high- yielding, high-beta currencies. We are seeing evidence that cash is moving out of banks.”
The dollar slid 0.5 percent to $1.4724 per euro at 2:05 p.m. in New York, from $1.4658 yesterday. It reached $1.4733, the weakest level since Sept. 25, 2008. The yen dropped 0.4 percent to 133.95 per euro, from 133.47. Japan’s currency added 0.1 percent to 90.95 per dollar, from 91.05, after appreciating to 90.13, the strongest level since Feb. 12.
The euro gained versus the dollar as traders succeeded in pushing the currency past $1.4720, the technical level just above the Dec. 18 high.
The New Zealand dollar, one of 10 currencies offering the highest three-month deposit rates in the Bank for International Settlements’ triennial survey of currency volume, climbed as much as 1.5 percent to 71.53 U.S. cents, the highest level since August 2008, and 1.1 percent to 64.92 yen.
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More 6 Figure Earners Living Paycheck to Paycheck Despite Low Inflation
Making ends meet is getting harder, even for those earning over six figures a year, according to a new survey released by employment Web site CareerBuilder.com.
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“Many more people are living paycheck to paycheck compared to last year,” says Richard Castellini, chief marketing officer at CareerBuilder.com. “What you’re seeing is that the problem is moving into higher income levels.”
Thirty percent of workers with salaries of $100,000 or more said they are living paycheck to paycheck, up from 21 percent last year, according to the survey of 4,400 workers nationwide.
Overall, 61 percent said they always or usually live paycheck to paycheck, up from 49 percent in 2008 and 43 percent in 2007.
“Companies have reduced salaries, and people are used to creating a lifestyle with what they were making a year ago or so,” says Castellini.
To cope, Americans have been cutting back on how much they save.
Some 21 percent of all respondents said they have reduced their 401(k) contributions or personal savings in the last six months in order to get by, while 23 percent of the $100,000-and-over group said they had done so.
While some Americans have cut back on what they set aside, others have stopped saving all together.
Thirty-six percent said they don’t contribute anything to retirement savings , like a 401(k) or a IRA.
As for short-term savings, 33 percent of those surveyed reported that they don’t put any money aside each month, up from 25 percent in 2008.
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Barclays To Sell $12.3 billion in Debt
By Jon Menon
Sept. 16 (Bloomberg) — Barclays Plc, the U.K.’s second- largest lender, agreed to sell $12.3 billion of debt to a fund run by two former executives as it seeks to cut its exposure to credit-market volatility.
Barclays will sell the assets, which include bonds backed by U.S. subprime mortgages, to Protium Finance LP, a fund set up by Stephen King, former head of the bank’s principal mortgage trading group, and Michael Keeley, a member of Barclays Capital’s management committee, the London-based bank said in a statement today. Protium will fund the purchase with a $12.6 billion loan from Barclays and $450 million from investors.
Barclays won’t record a gain or a loss from the sale, and the assets will remain on its balance sheet for regulatory purposes, it said. The debt the bank is transferring caused a pre-tax loss of 1.2 billion pounds ($2 billion) in 2008, Barclays said.
The fund is a way for Barclays to “wriggle free from its toxic assets,” said Simon Maughan, an analyst at MF Global Securities in London, who has a “buy” rating on the lender. “They are still on the hook from a regulatory perspective and if the assets explode, they won’t pay the loan back,” he said.
Partners of Protium will get any excess cash in the fund after repaying the 10-year loan from Barclays, the bank said. Management fees and distributions to partners will be paid before interest and principal repayments on the Barclays loan, according to the statement.
Mortgage Bonds….
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GS Says the 10 yr. Note May Drop to 3%
By Candice Zachariahs
Sept. 16 (Bloomberg) — Yields on 10-year Treasury notes “risk” a decline toward 3 percent, the least in five months, as the underlying inflation rate is likely to set new lows, Goldman Sachs Group Inc. said.
The U.S., the U.K. and Australia will be the “main beneficiaries” of a rally in longer-maturity government bonds, Francesco Garzarelli, chief interest-rate strategist in London at Goldman Sachs, wrote in a research report. Australian 10-year securities are the “cheapest” among markets tracked by Goldman and should trade at yields below 5 percent, he wrote.
“We see risk skewed in the direction of 10-year yields breaking towards their 200-day moving average of 3 percent, from their current 3.4 percent level,” Garzarelli and Michael Vaknin wrote in a separate note to clients. “The global bond premium remains elevated, although off the June highs, and there is plenty of excess liquidity in banks balance sheets which needs to be put to work.”
The yield on the U.S. 10-year note declined one basis point, or 0.01 percentage point, to 3.45 percent at 11:05 a.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 rose 1/32, or 31 cents per $1,000 face amount, to 101 14/32.
The yield on 10-year Australian government bonds rose four basis points to 5.30 percent, according to data compiled by Bloomberg.
Cost of Living
The cost of living in the U.S. probably rose 0.3 percent in August, Labor Department data will likely show today according to the median estimate of 75 economists surveyed by Bloomberg News. Investors use the figures to gauge inflation, which eats away at a bond’s returns. Goldman Sachs expects the consumer price index to rise 0.2 percent.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, stood at 1.85 percentage points, compared with an average of 2.19 points over the past five years.
Investors may benefit by using a so-called “call spread” in the futures market to bet on gains in Treasuries, the bank said. Goldman advised purchasing an option to buy a 10-year future at a strike price of 118, implying a yield of 3 percent, while simultaneously writing a buy option on the same future with a strike price corresponding to a yield of about 3.3 percent…..
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Asian Markets Rise on U.S. Retail Data
By Shani Raja and Ian C. Sayson
Sept. 16 (Bloomberg) — Asian stocks rose, giving the MSCI Asia Pacific Index its largest gain in three weeks, after U.S. retail sales and New York manufacturing reports beat estimates and commodity prices advanced.
Canon Inc., which gets 28 percent of its revenue in the Americas, climbed 4.8 percent in Tokyo as Nomura Holdings Inc. recommended buying the shares. National Australia Bank Ltd., the nation’s largest by assets, rose 2.8 percent, as an index of the country’s leading economic indicators climbed. BHP Billiton Ltd., the world’s biggest mining company, gained 1.7 percent after metal prices rose for the first time in five days.
“Asia and other emerging markets have strong domestic economies that will benefit further from a global recovery,” said Paul Joseph Garcia, who helps manage about $1.45 billion as chief investment officer at the Philippine unit of ING Investment Management Ltd. “Trade will pick up and that’s good for Asia’s export-oriented industries.”
The MSCI Asia Pacific Index gained 1.6 percent to 117.69 as of 1:36 p.m. in Tokyo, the biggest advance since Aug. 24. The gauge has climbed 67 percent from a more than five-year low on March 9 as stimulus measures around the world pulled economies out of recession. Stocks on the gauge are priced at an average 24 times estimated earnings, up from 15 times at the March low.
South Korea’s Kospi Index advanced 2.2 percent. Hong Kong’s Hang Seng Index rose 1.8 percent. Australia’s S&P/ASX 200 Index climbed 2.2 percent with Telstra Corp. surging 3.9 percent on optimism it will get access to a new national Internet network……
European Markets Set To Trade Higher
By Adam Haigh
Sept. 16 (Bloomberg) — European stock-index futures advanced and Asian shares rallied as billionaire investor Warren Buffett said his company is buying equities and higher commodity prices lifted raw-material producers. U.S. futures gained.
BHP Billiton Ltd., the world’s biggest mining company, increased 2 percent in Sydney as copper, lead and nickel climbed on the London Metal Exchange. KBC Group NV may rise after Goldman Sachs Group Inc. advised buying shares of the Belgian bank. Inditex SA will probably gain after first-half net income at Europe’s largest clothing retailer beat analysts’ estimates.
Futures on the Dow Jones Euro Stoxx 50 Index added 0.6 percent at 7:23 a.m. in London. The U.K.’s FTSE 100 Index is set to open 25 points higher, according to inter-dealer broker BGC Partners. The MSCI Asia Pacific Index surged 1.5 percent.
Europe’s Stoxx 600 has rallied 53 percent since March 9 as earnings at companies from Goldman Sachs to Roche Holding AG topped estimates and the German and French economies unexpectedly exited recessions. The measure has risen eight times in the last nine days.
Standard & Poor’s 500 Index futures expiring in December added 0.2 percent after earlier falling 0.1 percent. The gauge increased 0.3 percent yesterday after a government report showed retail sales excluding automobiles gained 1.1 percent last month, while the Federal Reserve Bank of New York said its general economic index rose to 18.9 in September. Both reports surpassed economist estimates….
Oil Trades Below $71pb off Yesterday’s U.S. Supply Data
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By Rebecca Keenan
Sept. 16 (Bloomberg) — BHP Billiton Ltd., the world’s largest mining company, said improving economic conditions in China will help drive demand for commodities including coal and iron ore.
The “economic upswing in China is well advanced,” Melbourne-based BHP said today in a presentation on its Web site. “Developed nation restock has started,” and it “will be 2010 before true demand emerges,” BHP said. Tom Schutte, president of marketing, will meet reporters today at a briefing in Sydney.
China’s gross domestic product expanded 7.9 percent in the second quarter as the nation became the first major economy to rebound from the global recession. The recovery helped support a 66 percent surge in metals prices this year.
“Global steel demand will double over the next 15 years,” BHP said in today’s presentation. “China will remain a major opportunity for iron ore with metallurgical coal demand growth focused on both India and China.” BHP is the world’s largest supplier of seaborne metallurgical coal, or coking coal…….
Credit Default Swaps Lose Disaster Stigma
By Abigail Moses and Shannon D. Harrington
Sept. 16 (Bloomberg) — A year after the bankruptcy of Lehman Brothers Holdings Inc., credit-default swaps have lost their stigma for disaster and are contributing to the growing confidence in the credit markets.
The cost to protect against a failure by New York-based Goldman Sachs Group Inc., Charlotte, North Carolina-based Bank of America Corp., and 12 of the other biggest derivatives dealers dropped 66 percent in the past six months, according to an index of swaps compiled by Credit Derivatives Research LLC. While the U.S. struggles with the slowest recovery since 1945, the market where investors protect themselves from default and speculate on corporate debt shows confidence is the highest since June 2008.
Credit-default swaps worsened the biggest financial crisis since the 1930s as the meltdown of Lehman and American International Group Inc., two of the largest traders, caused a seizure in lending. Now, Wall Street is accelerating reforms Treasury Secretary Timothy Geithner started in 2005 when he was president of the New York Federal Reserve to increase transparency in a market lawmakers plan to regulate.
“A functioning credit-default swaps market contributes to more efficient extension of credit” by giving investors and lenders confidence that the industry won’t implode, said Alexander Yavorsky, a senior analyst at Moody’s Investors Service in New York. The consequences of Lehman’s failure “were astronomical, broadly speaking, but the CDS market worked well,” he said.
Receding Concerns…..
NEC & Renesas To Merge Creating The 3rd Largest Chipmaker
By Pavel Alpeyev
Sept. 16 (Bloomberg) — NEC Electronics Corp. and Renesas Technology Corp. are poised to merge by April after their parent companies agreed to inject 200 billion yen ($2.2 billion) into what may become the world’s third-largest chipmaker.
Hitachi Ltd. will own 33 percent of the new company, called Renesas Electronics Corp., while Mitsubishi Electric Corp. will hold 25 percent and NEC Corp. will own a 31 percent stake, the companies said in a statement today. Renesas President Yasushi Akao will become the chief executive officer of the new chipmaker, according to the statement.
The merger may create a chipmaker with more than 28 percent of the $11.1 billion market for microcontrollers used in cars and consumer electronics, almost triple the share of nearest rival Freescale Semiconductor Inc. Worldwide sales of the devices will probably climb to $16.8 billion in 2012, according to research firm ISuppli Corp.
Microcontrollers are mini-computers dedicated to specific tasks such as for cruise-control in a car, or remote control functions for a DVD player.
Hitachi gained 0.7 percent to close at 309 yen and Mitsubishi Electric climbed 0.5 percent to 664 yen on the Tokyo Stock Exchange. NEC closed unchanged at 302 yen and NEC Electronics added 1.6 percent to 893 yen.
No. 3 Chipmaker….
By DON CLARK and SUZANNE VRANICA
Adobe Systems Inc. agreed to buy software company Omniture Inc. for $1.8 billion, a deal designed to help customers track and make money from Web sites that were created with Adobe’s programs.
Adobe said it will pay $21.50 a share in cash for Omniture, a 24% premium to Tuesday’s
4 p.m. price. Omniture shares surged 25% in after-hours trading on the news, while Adobe shares declined 4.2%.
The announcement came as Adobe reported its profit fell 29% and revenue slid 21% in its latest quarter as the continuing downturn in media markets slows demand for its traditional software, such as Photoshop and InDesign.
Omniture, based in Orem, Utah, specializes in a field known as Web analytics. It provides to advertisers, media companies and other customers information about user activity, such as what Web pages they visit, how much time they spend there and what ads they click on. Customers may change their ads or Web sites based on such data, including data about the effectiveness of ads based on terms users type into search engines.
Companies such as Ford Motor Co., Ameritrade Holding Corp. and Xerox Corp. pay monthly fees to access Omniture’s services. The amount they pay typically reflects the Web traffic occurring on their sites.
Adobe, San Jose, Calif., said it plans to build code into its content-creation programs to help them exchange data with Omniture services, eliminating time-consuming programming by customers and helping more of them make money on their Web sites. “We really think that we can actually tranform how digital content is created,” said Shantanu Narayen, Adobe’s chief executive officer.
Web analytics generates about $600 million in world-wide annual revenue now, but the industry is expected to grow to $2.2 billion by 2011, according to a June 2008 estimate by J.P. Morgan.
Companies that compete with Omniture include Webtrends Inc. and Coremetrics. Google Inc., the search giant, also offers some analytic services……
INTC Revving Up For Mobile Device Battle
By Tarmo Virki, European technology correspondent
HELSINKI (Reuters) – Intel (INTC.O) has slashed the power consumption of its new “Moorestown” chip platforms for mobile devices, a big boost for its efforts to grab a slice of a booming market for chips in cell phones and other consumer electronics.
Anand Chandrasekher, a senior vice president at Intel and general manager for the ultra mobility group, also said the company is open to joining forces with the world’s largest cell phone maker, Nokia (NOK1V.HE), on a Linux-based operating system.
Analysts have previously said Intel’s chip-and-chipset platforms will be too power-hungry for portable consumer electronics and cell phones, when compared with rival platforms based on ARM Holdings Plc (ARM.L) architecture.
But Chandrasekher told Reuters the company has almost kicked the problem.
Battery life — hurt most by large screens and powerful processors — is one of the most crucial metrics in the phone industry. Last month, a senior Nokia executive said ARM is today “miles and miles” ahead of Intel on energy management.
“We’re gonna be very close and almost match,” Chandrasekher said of the power consumption of Intel’s Atom-based “Moorestown” platform.
He said Intel’s average power usage is improving as the company has been able to sharply cut the amount of power the chip uses, and have it idle between tasks.
“This is really their first foray into mobile and smartphones. This is the scouting party if you will,” said Real World Technologies analyst David Kanter.
“Their 32 nanometer process is really going to make some quite compelling products for cell phones.”
Intel’s next mobile platform, codenamed “Moorestown” and due out in 2010, is based on a 45 nanometer Atom chip. Its 32 nanometer Atom-based mobile platform, codenamed “Medfield,” is due out in 2011…..
U.S. Credit Defaults Rise Again
By Juan Lagorio
NEW YORK (Reuters) – Bank of America Corp and Citigroup Inc customers defaulted on their credit card debts in August at the highest rates since the onset of the recession, a sign that the banks’ consumer lending woes are far from over.
The trend was echoed among most other major credit card issuers, dashing optimism sparked when many banks and specialty finance companies reported lower default rates for July.
“People have gotten very bullish with the July data, and (the August data) raises the question about how fast the consumer will get better,” said Scott Valentin, an analyst at FBR Capital Markets. “People were assuming the pace would be pretty rapid, and this maybe slows the pace down.”
The worse-than-expected August numbers bolstered the contention of some analysts that the July decline in defaults was due more to seasonal effects, like tax refunds, then an improvement in consumers’ financial health.
Many analysts expect bad-loan levels will keep rising until later this year or early 2010.
“The defaults are a wake-up call for those expecting a V-shaped recovery,” said Elliot Spar, options market strategist at Stifel Nicolaus & Co……
C Raises $5 bln in Bail Out Bonds
Citigroup raised $5bn in government-guaranteed bonds on Tuesday under a emergency facility that is set to expire in six weeks and has been abandoned by most of its rivals as market conditions improved.
Citi’s move to tap the government-backed plan – introduced at the height of the crisis last year – could complicate attempts by its management to persuade the government to reduce its 34 per cent stake in the bank.
People close to the situation said Citi was in early talks with the US Treasury over a plan that would enable the company to raise capital by selling shares and enable the authorities to pare their holding.
But Citi’s decision to sell two and three-year bonds backed by the Federal Deposit Insurance Corporation could reinforce the perception that the bank, which has received $45bn in federal aid, is still not back to full health.
“Citi is trying to pull away from government ownership with the share sale, but the government will still be guaranteeing a big part of their balance sheet through the guaranteed debt,” said Jason Brady, portfolio manager at Thornburg Investment Management.
FDIC-backed debt is cheaper to issue than normal debt because investors are prepared to accept a lower interest rate because of the government guarantee.
Citi said on Tuesday that it “continuously evaluates capital markets opportunities to achieve its strategic financing objectives”.
Citi has issued more than $15bn in non-guaranteed debt – the biggest issuer of this kind of debt among users of the FDIC programme – according to Dealogic. But that is less than a third of the $49.6bn Citi has raised in FDIC-guaranteed debt since the facility was created last November.
The programme is set to expire on October 31, but the FDIC may extend it on a case-by-case emergency basis for another six months.
Citi’s main rivals have largely stopped issuing FDIC-backed debt. General Electric, which did not receive bail-out money, issued $1bn in guaranteed debt earlier this month but the last banks to do so were GMAC in June and US Bancorp in May.
Citi’s shares fell more than 8 per cent to $4.12 on Tuesday amid concerns over the sale of the government stake.
Despite a 55% rally in stocks since the March low, history shows us that a move higher might be much more difficult. The Dow Jones Industrial Average has experienced just two declines that are comparable in size and scope to the most recent decline. In both circumstances stocks rallied over 50% from their lows and then struggled sideways for nearly a full decade afterward. Considering the excesses we’re dealing with, it wouldn’t be shocking to experience something quite similar over the course of coming 5-10 years:
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* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.
