Wall Street Breakfast: Must-Know News

• Goldman defends dark pools, status quo. In a letter to the SEC (.pdf), Goldman Sachs (GS) dispelled five common myths about so-called 'dark pool' anonymous trading exchanges, saying the venues benefit both institutional and retail traders by reducing transaction costs and increasing competition. The rest of the 56-page document - which summarizes a Sept. 24 SEC/Goldman gettogether - sheds light on industry practices of short selling, high-frequency trading, flash trading and naked access, which have come under varying levels of criticism in recent months.
• India begins exit. With inflation pressures building, the Reserve Bank of India took the first step toward withdrawing its record fiscal stimulus by ordering lenders to keep more cash in government bonds. "It may be appropriate to sequence the 'exit' in a calibrated way," governor Duvvuri Subbarao said today after boosting the liquidity ratio to 25% from 24%. BofI kept its benchmark rates unchanged, and maintained its 6% GDP growth forecast. "We will start to see G-20 economies exiting now, starting with the emerging ones and then the advanced countries," economist Mridul Saggar said. India's BSE Sensex was down 2.3% amid a broad Asia pullback. (ETF: INP)
• New IRS group targets ultra-rich. A new IRS unit will target the ultra-wealthy by helping decode partnerships, offshore trusts and other complex techniques used to hide earnings. Speaking to an accountants' trade group Monday, IRS commissioner Doug Shulman said the new Global High Wealth Industry group will begin its first audits next month, honing in on individuals with assets or income in the tens of millions - for whom, he said, you cannot assess compliance "by looking only at their 1040s."
• Gross sees weaker U.S., pressure on Treasurys. Influential bond manager Bill Gross warned Monday that an end to the Fed's debt buyback schemes could add selling pressure to several credit markets, including U.S. Treasurys. Gross also said he believes emerging economies will grow faster than the U.S.: "The emerging world, whether it's in Asia, Australia or other associated countries, will do much better from the standpoint of growth, and that's where money should eventually move to. It moves there because of higher profits and it moves there actually because of higher real interest rates."
• China predicts more growth ahead. China reported a 190% jump in overseas investment (to $20.5B in Q3), and forecast industrial production would rise 16% in Q4 after a 13.9% gain in Q3. Analysts say Beijing may be encouraging Chinese companies to invest abroad to ease upward pressure on the yen. Last week, China reported an 8.9% gain in Q3 GDP, leading to speculation about an imminent exit from its super-loose monetary stance. This morning, Morgan Stanley's Stephen Roach said investors are wrong to bet on China reining things in: "The Chinese really are fixated on one thing and one thing alone which is social stability - they don’t want to take a risk of another negative growth surprise." (ETFs: FXI, PGJ)
• Japan's Fujii criticizes BOJ. Japan's finance minister lashed out at its central bank Tuesday, calling its view of the economy too rosy and narrowly informed. "The BOJ has repeatedly said the economy is getting better, but they are dealing with different people," Hirohisa Fujii said at a meeting. The BOJ has a developed a reputation of allowing its jawboning to push it to act in a contrary way just to demonstrate its independence. (ETF: EWJ)
• UBS hires McCann to rebuild Americas unit. UBS (UBS) named Robert McCann - former chief of Merrill Lynch's brokerage unit - to head its Americas wealth management businesses. UBS has been hurt by a tax dispute with the U.S. government, not to mention bad bets on auction-rate securities, writedowns, and capital outflows. McCann dispelled rumors the unit may be up for sale: "I had to go to court against two of my former employers to be able to work with UBS. I would have not done that if the whole goal was to sell the company." Analysts say the unit remains 'strategically challenged,' and are skeptical a new helmsman can combat the negative implications of UBS's loss of its status as banker to the ultra-secretive.
• Utex leads bidders for GE Security. Sources say United Technologies (UTX) has emerged as the frontrunner for GE's (GE) fire alarm and surveillance systems unit, which it put on the block earlier this year. A deal would bolster United's strategy of locking in revenue streams by offering multi-year service contracts for equipment and systems in commercial buildings. GE is thought to want about $2B for the unit.
• EU approves Pepsi bottlers merger. PepsiCo (PEP) received the European Commission's blessings for its $7.8B deal to buy Pepsi Bottling Group (PBG) Tuesday, despite some overlap in their businesses. "The proposed transaction would not significantly change the market structure. Consequently, the Commission concluded that the transaction would not raise competition concerns," it said.
• Europe lending dries up. Euro zone private-sector loans fell 0.3% from a year ago, the first contraction on record, but economists said a slight rise in month-over-month lending was a sign credit in the area was slowly beginning to flow again. "The year-on-year fall is going to catch everyone's imaginations, but that's a lagging indicator of what's been going on," Fortis's Nick Kounis said. Loans to households rose by €14B from August, the fifth sequential increase.
• Data point to bumpy recovery. Regional reports Monday suggested the economy is approaching levels associated with the end of recession, but isn't exactly surging to new highs. Chicago Fed's national activity index (.pdf) fell to -0.81 from -0.65 in August, with production/income making the only positive contribution. Still, the index's three-month moving average makes quite a strong case for a V-shaped recovery. Dallas Fed said Texas-area factory activity declined, and its production index moved into negative ground after leveling the month before. The Chicago Fed's manufacturing index (.pdf) rose 1% to 82.3, but remains 15.7% lower than a year ago.

Earnings: Tue. Before Open

• ACGO Corp. (AGCO): Q3 EPS of $0.13 beats by $0.09. Revenue of $1.4B (-32.7%) in-line. (PR)
• AK Steel (AKS): Q3 EPS of $0.06 beats by $0.05. Revenue of $1.04B (-51.7%) in-line. Shares +1.1% premarket. (PR)
• Avery Dennison (AVY): Q3 EPS of $0.82 beats by $0.25. Revenue of $1.55B (-10.2%) vs. $1.47B. "While the rate of volume decline in the third quarter improved compared with the first half of the year, this was largely due to a slowdown in inventory reductions. Our end-markets remain soft, and we continue to be cautious about the pace of their recovery." (PR)
• BE Aerospace (BEAV): Q3 EPS of $0.36 beats by $0.04. Revenue of $460M (-21.8%) in-line. Expects a substantial increase in earnings and revenue in 2011. (PR)
• Boyd Gaming (BYD): Q3 EPS of $0.09 misses by $0.01. Revenue of $398M (-6.6%) vs. $411M. "While visitation levels remained fairly constant, spend per visitor continues to be down significantly year-over-year, as consumers are still being cautious with their spending." (PR)
• BP (BP): Q3 earnings of $4.67B (-47%) vs. consensus of $3.25B. Sees 2009 costs down by $4B vs. a previous $3B. Total production +6.9%. Shares +5% premarket. (PR)
• Canadian Pacific Railway (CP): Q3 EPS of $0.85 beats by $0.07. Revenue of $1.09B (-14%) in-line. (PR)
• Celanese (CE): Q3 EPS of $0.58 beats by $0.15. Revenue of $1.3B (-28.5%) in-line. (PR)
• CommScope (CTV): Q3 EPS of $0.61 beats by $0.05. Revenue of $750M (-29.4%) vs. $784M. (PR)
• Convergys (CVG): Q3 EPS of $0.27 beats by $0.04. Revenue of $765M (+13.2%) vs. $653M. (PR)
• Corn Products International (CPO): Q3 EPS of $0.70 beats by $0.07. Revenue of $971M (-10.5%) vs. $983M. (PR)
• EarthLink (ELNK): Q3 EPS of $0.28 beats by $0.03. Revenue of $174M (-24.4%) in-line. Net subscriber losses of 146K, down from 149K in Q2 and 275K a year ago. Shares +3.8% premarket. (PR)
• Del Monte (FDP): Q3 EPS of $0.61 beats by $0.24. Revenue of $766M vs. $819M. (PR)
• FirstEnergy (FE): Q3 EPS of $1.11 beats by $0.06. Revenue of $3.4B (-12.8%) vs. $2.96B. (PR)
• FPL Group (FPL): Q3 EPS of $1.38 misses by $0.03. Revenue of $4.47B vs. $4.96B. Shares -3.1% premarket. (PR)
• Honda (HMC): FQ2 profit of ¥54B (-56%) beats consensus by ¥11B. U.S. vehicle sales -25% to 300K. Sees full-year net income of ¥155B, almost triple its previous forecast, and global sales of 3.4M, up 3.2%. (Bloomberg)
• Hospira (HSP): Q3 EPS of $0.90 beats by $0.21. Revenue of $1.01B (+8.9%) vs. $0.94B. Shares +3.7% premarket. (PR)
• IAC/InterActiveCorp (IACI): Q3 EPS of $0.34 beats by $0.21. Revenue of $337M (-8.9%) in-line. Shares +1.3% premarket. (PR)
• Iconix Brand Group (ICON): Q3 EPS of $0.31 beats by $0.03. Revenue of $59.4M (+7.7%) vs. $53.9M. Shares -1.3% premarket. (PR)
• Johnson Controls (JCI): FQ4 EPS of $0.52 beats by $0.01. Revenue of $7.87B (-15.5%) in-line. (PR)
• L-3 Communications (LLL): Q3 EPS of $2.12 beats by $0.27. Revenue of $3.84B (+4.9%) in-line. (PR)
• Life Technologies (LIFE): Q3 EPS of $0.73 beats by $0.11. Revenue of $805M (+2.7%) vs. $791M. Shares +4.1% premarket. (PR)
• Sonic Automotive (SAH): Q3 EPS of $0.21 misses by $0.03. Revenue of $1.52B (-5.9%) in-line. (PR)
• TD Ameritrade (AMTD): Q3 EPS of $0.26 beats by $0.04. Revenue of $658M (+1.3%) vs. $630M. Avg. client trades +35% to 411K/day. Used 70% of net income to buy back shares at average of $11.94/share. Shares +1.4% premarket. (PR)
• Textron (TXT): Q3 EPS of $0.12 vs. consensus of -$0.03. Revenue of $2.55B (-26.6%) in-line. Sees full-year EPS of $0.33-0.63 vs. consensus of -$0.06. (PR)
• Under Armour (UA): Q3 EPS of $0.52 beats by $0.08. Revenue of $270M (+16.2%) vs. $250M. Shares +1.6% premarket. (PR)
• United States Steel (X): Q3 EPS of -$2.11 beats by $0.76. Revenue of $2.82B (-61.5%) vs. $2.72B. Shipment volumes and operating rates increased significantly from the very low levels of Q2. Remains cautious in its outlook for end-user demand, as customer order rates have decreased from Q3. Shares +4.4% premarket. (PR)
• Valero (VLO): Q3 EPS of -$0.39 misses by $0.06. Revenue of $19.5B (-45.8%) vs. $18.8B. Refining margins continued to suffer from a combination of weak demand for refined products and high inventories. Shares +0.6% premarket. (PR)
• Wynn Resorts (WYNN): Q3 EPS of $0.33 beats by $0.18. Revenue of $773M vs. $743M. Shares +1.9% premarket. (PR)

Earnings: Mon. After Close

• Arris Group (ARRS): Q3 EPS of $0.25 beats by $0.01. Revenue of $276M (-7%) vs. $274M. Shares +0.7% AH. (PR)
• Baidu.com (BIDU): Q3 EPS of $2.16 beats by $0.35. Revenue of $187M (+39%) vs. $188M. Sees Q4 revenue of $174M-180M vs. $203M. Shares -13.1% AH. (PR)
• Cabot Oil & Gas (COG): Q3 EPS of $0.41 beats by $0.05. Revenue of $207M (-15%) vs. $205M. (PR)
• DryShips (DRYS): Q3 adjusted EPS of $0.27 beats by $0.07. Revenue of $228M (-30%) vs. $210M. Shares -0.3% AH. (PR)
• Flextronics International (FLEX): FQ2 EPS of $0.13 beats by $0.04. Revenue of $5.8B (+1%) in-line. Sees Q3 EPS of $0.14-0.16 vs. $0.13. Shares +2.7% AH. (PR)
• Health Management Associates (HMA): Q3 EPS of $0.10 beats by $0.01. Revenue of $1.1B (+6%) in-line. Shares -1.1% AH. (PR)
• Masco (MAS): Q3 EPS of $0.08 misses by $0.01. Revenue of $2.1B (-17%) vs. $2B. Sees full-year adjusted EPS of $0.12-0.22 vs. $0.07. Shares -0.1% AH. (PR)
• Plum Creek Timber (PCL): Q3 EPS of $0.12 beats by $0.04. Revenue of $294M (-29%) vs. $274M. Sees Q4 EPS of $0.12-0.17 vs. $0.12, and full-year EPS of $1.39-1.44 vs. $1.35. Shares +0.6% AH. (PR)
• SL Green Realty (SLG): Q3 EPS of $0.98 in-line. Revenue of $250M (-7%) vs. $224M. (PR)
• Vertex Pharmaceuticals (VRTX): Q3 EPS of -$0.71 beats by $0.10. Revenue of $25M (-21%) vs. $30M. (PR)
• VF Corp. (VFC): Q3 EPS of $1.94 misses by $0.01. Revenue of $2B (-5%) in-line. Shares -7% AH. (PR)

Today's Markets

Asia's markets dropped strongly on Tuesday, but Europe is above breakeven at midday, and futures are flat after a U.S. pullback Monday.

• Asia: Nikkei -1.4% to 10212. Hang Seng -1.9% to 22170. Shanghai -2.8% to 3021. BSE -2.3% to 16353.
• Europe at midday: FTSE +0.4% to 5213. CAC +0.3% to 3757. DAX +0.3% to 5659.
• Futures at 7:00: Dow +0.1% to 9853. S&P +0.1% to 1067. Nasdaq flat. Crude +0.6% to $79.18. Gold -0.3% to $1,040. Dec. 10-year note +0.13%. Euro +0.2% vs. dollar. Yen +0.3%. Pound +0.8%.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:55 Redbook Chain Store Sales
  9:00 S&P Case-Shiller Home Price Index
  9:00 Kenneth Feinberg speaks
  10:00 Consumer Confidence
  10:00 Richmond Fed Mfg.
  10:00 State St. Investor Confidence Index
  10:00 Markup: Investment Advisers Act; Investor Protection Act; Ratings Agencies
  2:00 PM Consumer Reports: Car Reliability Survey
  5:00 PM ABC Consumer Confidence Index
• Notable pre-market earnings: AGCO, AKS, AMTD, AVY, BEAV, BEN, BJS, BP, BYD, CE, CP, CPO, CTV, CVG, ECL, ELNK, ENTG, FE, FPL, GIGM, HSP, IACI, ICON, JCI, LIFE, LLL, PCAR, SAH, TXT, VLO, WYNN, X
• Notable post-market earnings: ACE, AMKR, APOL, BXP, CBI, CENX, CEPH, DWA, ERTS, ETFC, FISV, HRS, IDTI, ILMN, MCK, MEE, MOLX, NLC, NSC, PNRA, PPDI, RFMD, V, VCLK

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Comments

[AndrewBaker:]

Whether it's dark pools, high frequency trading or any other tool, the truth is that the markets have been ramped up over the past few months way ahead of any fundamental value. This can continue for longer, especially given the wall of cheap money that's out there looking for a home (and much of it TARP and other rescue funds that have found their way into the market rather than be used to provide rescue for deserving people and organizations). However, a pig in a poke does not get more valuable the longer it's there, and someday real pricing will re-establish itself.

Commodities are a far safer bet right now, plus anything held outside the US is probably a better bet too, especially as the dollar decline, though it might reverse temporarily and not be so steep going forward, is continuing and will continue so to do. Many other currencies are stronger than ours and likely to stay so for the foreseeable future.

If you've got money to invest or conserve, do not put it in the US stock market at this time: and if you do want to buy stocks, you'll get them a lot cheaper in a while's time, so wait at the very least.

Oct 27 08:14 AM

[doubleguns:]

A new IRS unit will target the ultra-wealthy.

Yes we are turning into France. France chased the wealthy out of their country years ago. They have never recovered. I hope this is simply not a witch hunt to intimidate the very people who start many of the small business that employment needs. Our gov is not doing a damn thing to create jobs, now this to harrasse those with the possibility to create jobs.

Seems the fools in Washington will spare no effort in beating the very last breath out of our economy.

Fair tax would fix all of this.

Oct 27 08:49 AM

[robert.b.fe...:]

Every one beats consensus on negative numbers. I'm shocked. Well as everyone knows what is good for GS is good for team Obama.... err America. Don't look for that stuff to change it's not change we can believe in. A shiny new IRS unit dedicated to going after the ultra rich non contributors.. I'll bet there will be no audit for Jeffy Immelt or anyone else on that list. Chicago way you know.

Oct 27 08:53 AM

[Old Trader:]

"Japan's finance minister lashed out at its central bank Tuesday, calling its view of the economy too rosy and narrowly informed."

Apparently, "green shoots" doesn't translate into Japanese.

Oct 27 09:16 AM

[doubleguns:]

Old Trader the translation would be "Me" pronounced with a short e like the Canadian eh.

I think they don't have a Kudlow over there is the problem. They are much more realistic.:-)

Maybe we could send them our Kudlow for a couple of years.

Oct 27 09:34 AM

[notsosmart:]

you cant be very busy if you have time to listen to kudlow & the other talking heads each with their own agenda.

Oct 27 10:13 AM

[TommyG:]

Doubleguns: Yes a revamped tax structure would fix a lot of ills but the scum in both houses won't let the their special interests get hurt. Meanwhile; is it too much to ask that everybody pays their share under the law, however flawed it may be.

Oct 27 10:37 AM

[Boxed Merlot:]

...As part of an overhaul of the Enforcement Division announced last month, the SEC has reportedly hired Adam Storch, 29-year-old ex-Goldman Sachs (GS) fraud analyst, as the unit's first chief operating officer...

...Goldman defends dark pools, status quo. In a letter to the SEC (.pdf), Goldman Sachs (GS) dispelled five common myths about so-called 'dark pool' anonymous trading exchanges...

Sure looks like our newest public servant installed by our illustrious voluntarily elected officials has hit the road running. His handlers must be very proud. Adam probably drafted the report himself prior to his arrival, so he actually just delivered it to himself. Evidently, no matter how well our newest technology advances to trade the markets, "wholesalers" will continue to wrestle for advantage to define everyone else as "retail" purchasers to protect their own grossly oppressive profits and schemes to enslave the sovereign citizenry of our nation.

Oct 27 11:07 AM

[Denise Hubbard:]

Look at this article: Movie about the naked short selling of Sirius XM sends U.S. Postal Worker to the Stars
www.prlog.org/10340245...
or at
"Stock Shock" movie site stockshockmovie.com

Oct 27 12:44 PM

[Bob 123:]

<<Fair tax would fix all of this>>

--- agree! - and so does the administration. Tax the rich too.


On Oct 27 08:49 AM doubleguns wrote:

> A new IRS unit will target the ultra-wealthy.
>
> Yes we are turning into France. France chased the wealthy out of
> their country years ago. They have never recovered. I hope this is
> simply not a witch hunt to intimidate the very people who start many
> of the small business that employment needs. Our gov is not doing
> a damn thing to create jobs, now this to harrasse those with the
> possibility to create jobs.
>
> Seems the fools in Washington will spare no effort in beating the
> very last breath out of our economy.
>
> Fair tax would fix all of this.

Oct 27 12:54 PM

[Socialism c...:]

Nooooooo!!! They can't have our Kudlow! We need him here!!


On Oct 27 09:34 AM doubleguns wrote:

> Old Trader the translation would be "Me" pronounced with a short
> e like the Canadian eh.
>
> I think they don't have a Kudlow over there is the problem. They
> are much more realistic.:-)
>
> Maybe we could send them our Kudlow for a couple of years.

Oct 27 02:04 PM

[Socialism c...:]

Do you think that what you wrote even sounds logical?? Ask everyone to pay their share under the law, no matter how flawed it may be? Think about that from a theoretical standpoint -- is it really their "share" if the law is flawed? And the more flawed the tax code becomes, the more unjust the designated "share" would be?! Yet you would say those who have the most unjust share should still pay it? Is there no point at which they are justified in either not paying or in paying some but not all of it? If there is a point, where is that point? These are very real questions that we all need to be asking. Particularly with the way our tax money is being used!!

IMO, I would submit that it is not only the wealthy who are unjustly treated by the current income tax law...but almost everyone who actually pays in!! When you consider the nature of confiscatory taxation, $1 is too much. But when it has become 20...30...40% of gross incomes...how have we not revolted yet???


On Oct 27 10:37 AM TommyG wrote:

> Doubleguns: Yes a revamped tax structure would fix a lot of ills
> but the scum in both houses won't let the their special interests
> get hurt. Meanwhile; is it too much to ask that everybody pays their
> share under the law, however flawed it may be.

Oct 27 02:11 PM

[ebworthen:]

GS and Dark Pools - your money needs a tar pit to get lost in.

India begins exit - yes, emerging markets are ahead of us.

China predicts growth ahead - you predict what you need, "fake it till you make it"...and so your population doesn't revolt. They're green bamboo shoots over there, they just need a commentator named "Rarry Rudrow".

New IRS unit - almost funny. We put a tax cheat in charge of the Treasury, and now have a "crack" unit? Think they'll go after Soros? (NOT). 10 to 1 they go after anyone not towing the party (progressive) line, or conservative talk radio hosts. Comrades!

GE selling alarm and fire unit - hmmm...GM sure seems to be selling a lot of itself, NBC Universal, alarm unit, perhaps GE capital is insolvent?

Housing down today, crude inventories up; there is not a consumer recovery, and the market has been decreased dollar and FED liquidity and purchase of debt.

Time to take your profits - better to be early than lose if you've been in on the cotton candy and popcorn rally.

Oct 28 10:34 AM