Tuesday, August 25, 2015

Tuesday Watch

Posted by Gary .....at 12:12 AM
Evening Headlines 
Bloomberg:
  • China Stocks Extend Biggest Plunge Since 2007 on Support Doubts. Chinese stocks slumped for a fourth day, extending the steepest rout since 2007, on concern the government is paring back support for the market. The Shanghai Composite Index tumbled 3.9 percent to 3,085.49 at 10:21 a.m. local time, heading for the lowest close in eight months. The gauge plunged 8.5 percent on Monday, following last week’s 12 percent decline. The Hang Seng China Enterprises Index of Chinese shares in Hong Kong climbed 2.1 percent from its lowest level since March 2014. Speculation around the government’s intentions has escalated since Aug. 14, after China’s securities regulator signaled authorities will pare back the campaign to prop up share prices as volatility falls. Officials should wind down the stock market support program even if prices continue to decline, according to a front-page commentary in the state-run Economic Information Daily on Tuesday. “It’s panic selling and an issue of confidence,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “The government won’t step in to rescue the market again as it’s a global sell-off and it’s spreading everywhere now. It’s not going to work this time.”
  • Bear Grip Tightens on Emerging Stocks as Half of 30 Markets Wilt. One after another, stock markets in the developing world are sinking into bear territory. Fifteen of the 30 largest equity markets among emerging economies have extended losses from their peaks to 20 percent or more, fulfilling traders’ definition of a bear market. China and Russia have led the pack, tumbling more than 30 percent each. The remainder are either in a correction, or on the brink. Emerging markets are reeling after China’s yuan devaluation Aug. 11 sparked concern the world’s second-largest economy will slow further, undermining demand for oil, copper and other raw materials from countries including Brazil, Russia and South Africa. The rout comes as the Federal Reserve moves closer to raising borrowing costs for the first time in almost a decade, after central banks worldwide boosted stimulus measures to patch up economies following the global financial crisis. While Russia and China have led losses in emerging Europe and Asia, Egypt has lost the most among markets in the Middle East and Africa. In Latin America, Peru is hardest hit, down more 43 percent in the past year and outpacing Brazil which entered a bear market last week. Malaysia, Thailand and Dubai are on the brink of surpassing the 20 percent threshold, while 10 countries including India and South Africa have lost more than 10 percent, thus entering corrections.
  • China Strong Enough to Weather End of Stock Support, Paper Says. China should wind down its stock market support program even if prices continue to fall, according to a commentary in a state-run official economic daily. The front-page commentary in the Economic Information Daily sought Tuesday to reassure investors the Chinese economy wasn’t “that bad” and argued that disasters like the Asian financial crisis or the sub-prime mortgage debacle wouldn’t repeat. “It’s not good for the recovery of the economy to bring back the focus of quantitative easing to the stock market.”  
  • China Stock ‘Fear’ Dwarfs Greek Panic Amid Unknowns, Nordea Says. What scares people about China is all the things they don’t know about the world’s second-biggest economy. That’s according to Mathias Leijon, chief investment officer for equities at Nordea Investment Management. He says the market damage triggered by China’s decision to devalue the yuan earlier this month will be much bigger than the disturbances caused by the Greek debt crisis. “Greece wasn’t big enough to actually have an impact,” Leijon said by phone Monday. “But with China, given we don’t really know what the real growth numbers are, we don’t know the true underlying leverage numbers and the shadow banking system.”
  • Norway’s Richest Man Says He’s ‘Very Worried’ About China. John Fredriksen, the billionaire who made his fortune investing in crude tankers, said he’s “very worried” about the turmoil spreading from China and the potential fallout on global shipping markets. “It seems there are big problems in China,” Fredriksen said in an interview in Oslo on Monday. “That’s at least not good for the shipping market.” “For our situation it’s good for our tankers,” he said. “But for our oil rigs it’s negative.” The drilling rig market is facing lower demand from oil producers after crude prices collapsed last year. The decline in demand comes as new rigs enter the market, boosting oversupply after a decade of rising offshore investments. “There will be a mega consolidation in the rig market,” Fredriksen said. “It must happen, will happen. Within the next year there will be consolidation.” 
  • Big-Winner Australia Shudders as China Turmoil Darkens Outlook. Australia, the world’s most China-dependent developed economy, is looking on in dread at the prospect of weaker demand for its exports that threatens growth and could undermine the government’s re-election program. Just three months ago, Treasurer Joe Hockey hailed Australians as “the big winners” of the China relationship when he released his annual budget. Hockey predicted export demand would rise further, and noted each year Australia sent enough iron ore to China to build the equivalent of Sydney Harbour bridges over the nearly 2,500 miles to Perth and back.
  • Korean Leaders Back Off the Insults, Defusing Tensions. Negotiators from North Korea and South Korea reached an agreement involving concessions on both sides to defuse a military standoff that had taken tensions on the peninsula to their highest level in years. The regime in Pyongyang agreed to lift its “semi-state of war” and expressed regret over landmine blasts that maimed two South Korean soldiers, while the government in Seoul said it’d stop propaganda broadcasts across the heavily fortified border.
  • China Rout Accelerates in U.S. Trading Amid Record ETF Selloff. The largest U.S.-listed exchange-traded funds tracking yuan-denominated equities fell the most on record as China’s worst stock selloff since 2007 accelerated in New York trading amid questions over the government’s ability to support a flagging economy. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF tumbled 14 percent to a eight-month low of $30.11 on Monday, while the Market Vectors ChinaAMC A-Share ETF retreated 15 percent. The declines exceeded an 8.5 percent drop earlier in the trading day on the Shanghai Composite where more than 800 stocks fell by the daily 10 percent limit. The ETF selloff may indicate investors expect further weakness in the A-share market, according to Ankur Patel of R-Squared Macro Management. 
  • The Richest Guy in Asia Loses $3.6 Billion in the Market Rout. Asia’s richest person lost $3.6 billion on Monday, the most among all billionaires worldwide, as China’s stock markets had the biggest plunge since 2007 and a wave of selling spread across the globe. Wang Jianlin saw $2 billion wiped from his stake in Dalian Wanda Commercial Properties Co., according to the Bloomberg Billionaires Index, after the Hong Kong-listed property developer tumbled 17 percent to its lowest level since it went public in December. Wang also lost nearly $1 billion from his Shenzhen-traded Wanda Cinema Line Co., which fell by the exchange-exposed limit of 10 percent on Monday. His fortune stood at $31.2 billion after the decline.
  • Malaysia’s Stock Index Heads for Bear Market Amid Ringgit Slump. Malaysia’s stocks fell, with the benchmark index poised to enter a bear market, as a global rout deepened and concern grew over the nation’s economic growth. The FTSE Bursa Malaysia KLCI Index lost as much as 1.9 percent to 1,503.68 at 9:05 a.m. in Kuala Lumpur. The gauge has fallen more than 20 percent from its 2014 high. The ringgit traded little changed. Foreign funds have dumped more than $3 billion of the nation’s shares this year and the currency is at a 17-year low as political uncertainty clouds the outlook for an economy rocked by plunging oil prices and an emerging-market selloff. Prime Minister Najib Razak is grappling with allegations of financial irregularities at a state investment company, and facing accusations of impropriety after it was disclosed that political donations ended up in his private accounts in 2013.
  • Kiwi's Biggest Dislocation in 30 Years Flags Risk of More Losses. The collapse in the kiwi came just before the U.S. stock market opened sharply lower amid panic about China’s share selloff and an economic slowdown that drove commodities to a 16-year low. While the Australian dollar also fell, its drop wasn’t as severe as the kiwi’s and there wasn’t a similar widening in the bid-ask spread.
  • Asian Stocks Reverse Losses as Banks, Tech Shares Advance. Asian stocks rose, reversing early losses to rebound from the lowest level in two years, as banks in Japan and Australia rallied and technology companies advanced. The MSCI Asia Pacific Index gained 0.7 percent to 126.73 as of 10:03 a.m. in Hong Kong. The gauge slumped as much as 2.2 percent on Tuesday before rallying, and closed Monday at the lowest since 2013 on the cusp of a bear market.
  • BofA Says Collapsing Oil Drags U.S. LNG Exports Down With It. Plummeting crude oil prices have dimmed prospects for soon-to-start U.S. liquefied natural gas exports, Bank of America Corp. said in a note to clients Monday. The gap between U.S. and global prices for the fuel has narrowed as oil’s collapse reduced the cost of crude-linked LNG contracts in Asia and Europe, Max Denery, an analyst at the bank in New York, said in the report. Oil in London has tumbled 25 percent this year, falling below $45 a barrel Monday for the first time since 2009, while U.S. gas has dropped 8.3 percent.
  • Commodities Slump to 16-Year Low on Mining, Oil Stocks. A measure of returns from commodities sank to its lowest since 1999 and shares in resource companies tumbled by the most since the financial crisis on concern that a slowing Chinese economy will exacerbate supply gluts.
  • Hedge Fund ‘Hotels’ Sting Managers by Losing Up to 42% in Week. The cost of staying in “hedge fund hotels” has been soaring. Hedge fund hotels -- companies in which these firms hold a combined stake of at least 25 percent -- suffered declines of as much as 42 percent in the recent stock market rout. Below we highlight the five biggest such losers in the past week among companies with at least $1 billion in market value, a period in which the Standard & Poor’s 500 Index fell 10 percent. One caveat: the firms’ holdings are generally as of June 30 and may have changed.
  • Salesforce’s(CRM) Benioff Sees Danger for ‘Unicorns’ as Market Slumps. (video) Salesforce.com Inc. Chief Executive Officer Marc Benioff said that startups who prioritize high valuations over building their businesses may struggle in tougher market conditions. “It’s dangerous for these entrepreneurs that they’re more focused on their market cap than on their customers,” Benioff said in a Bloomberg Television interview on Monday. “When I see them get more focused on being a unicorn than being a company with a high level of customer satisfaction -- a high level of employee satisfaction and company that’s giving back to the community -- then I know it’s a problem.”
  • Property brokers plunge amid shadow of real estate slowdown. CBRE Group Inc.(CBG) and Jones Lang LaSalle Inc.(JLL), the global titans of property services, lost 8 percent and 8.7 percent, respectively, this month through last week, reversing sharp gains compared with real estate investment trusts and the Standard & Poor’s 500 Index.
Wall Street Journal:
  • Historic Profits for High-Frequency Trading Firm Today. ‘Our firm is made for this kind of market,’ Virtu Financial CEO says. Virtu Financial Inc., one of the world’s largest high-frequency trading firms, was on track to have one of its biggest and most profitable days in history Monday amid a tumultuous 24 hours for world markets, according to its chief executive. 
  • For All Its Heft, China’s Economy Is a Black Box. China’s economy is difficult to assess amid murky politics, unreliable data and opaque decision making. For sheer clout, China’s economy outweighs every country in the world save the U.S. But on transparency, it remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making. This veil dims the understanding of China’s economy and is an important reason its recent slowdown has produced so much turmoil.
  • The Clinton Plan to Distort Market Signals. Hillary’s attacks on ‘short-termism’ don’t reflect an understanding of what drives investing. Hillary Clinton’s big economic idea—ending corporate “short-termism,” as she calls it—will do more harm than good. On the campaign trail she rails against American corporations and the mysterious “tyranny of today’s earnings report.” Her solution is to raise capital-gains taxes and lengthen stockholding periods. Imagine anxiously waiting to unload during this month’s global selloff because of a holding period. Chalk it up as another misguided effort that will distort the information investors and companies rely...
Fox News:
  • Amid Biden deliberations, WH leaves door open to Obama primary endorsement. (video) The White House left the door open Monday to President Obama endorsing a candidate in the 2016 Democratic primary, raising the tantalizing possibility of Obama choosing between two administration powerhouses as Vice President Biden mulls a run against Hillary Clinton. The prospect of a Biden-vs.-Clinton rerun already is said to be dividing current and former Obama administration staffers looking at whom to support -- and potentially work for -- in 2016. Clinton was the obvious choice until her personal email scandal and problematic poll numbers stirred talk about Biden, whose supporters already are pulling together a team for a possible run.
  • Activists say ISIS destroys temple at ancient Palmyra site. (video) Islamic State (ISIS) militants have destroyed a temple at Syria's ancient ruins of Palmyra, activists said Sunday, realizing the worst fears archaeologists had for the 2,000-year-old Roman-era city after the extremists seized it and beheaded a local scholar.
CNBC:
  • People 'hooked on heroin of QE': Ex-Fed's Fisher. (video) Markets may be selling off amid fears of slowing global growth and the possibility of a September rate hike but the Fed couldn't care less, according to former Dallas Fed President Richard Fisher. "I don't think there is a single member of the FOMC that's going to react to one day's market activity," Fisher told CNBC's "Closing Bell" in an interview, noting that the economy went unscathed after stocks entered substantial corrections in 1962 and 1967. "It does demonstrate that people are hooked on the heroin of quantitative easing," he said, commenting on the market's reactions to supposed Fed clues. "Nobody on that committee would like to see that continue, they'd like to find the right exit point and they'll see what it is."
  • Anatomy of '1,000 flash crashes': What went wrong. (video) Monday's stock market action was bound to be messy, but it was made even worse by a major technical pile-up just as the session got underway. Dubbed by one trader "1,000 flash crashes," the market opened to tumult in which multiple stocks and in particular exchange-traded funds cascaded lower as orders failed to get filled and prices went ballistic. In all, 1,278 so-called circuit breakers—trading halts imposed when shares fall to various levels—were tripped across the major exchanges as the Dow Jones industrial average surrendered more than 1,000 points early on, according to New York Stock Exchange officials. The number of tripped breakers was believed to be a record, with ARCA's 999 the most, with the Nasdaq next at 194. A typical day sees fewer than 10.
Zero Hedge:
Shanghai Securities News: 
  • China Ratio Cut Won't Add Liquidity to Stocks: PBOC Academic. Chinese stock market investors should understand that the central bank won't cut the reserve requirement ratio solely to add liquidity to stock market, Wang Yong, a professor at the People's Bank of China's Zhengzhou training school, writes. Impact on China from another financial crisis would likely be larger than what it experienced in 1997 and 2008, Wang said. Capital markets can't rely on support policies as a market rescue might be more difficult than ever before, he said.
Securities Daily:
  • China Stock Market Rout Hurts Confidence, Threatens Reforms. Monday stock rout is destroying stock investors' confidence and creating "severe" problems, a front-page commentary says.
Economic Information Daily:
  • China Should Wind Down Govt Bailout of Stock Markets. The Chinese govt should gradually wind down its bailout of the stock markets even if the prices fall, a front-page commentary says. Bailout measures are intended to prevent financial risks rather than lift stock indexes, according to the commentary written by Xu Gao. Some market declines can help deleverage and reduce risks, he wrote.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.5% to +1.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 136.0 -8.75 basis points.
  • Asia Pacific Sovereign CDS Index 87.0 +6.75 basis points.
  • S&P 500 futures +2.05%.
  • NASDAQ 100 futures +1.77%.

Earnings of Note
Company/Estimate
  • (BMO)/1.73
  • (BBY)/.34
  • (DSW)/.42
  • (SAFM)/2.76
  • (PLCE)/-.33
  • (TOL)/.49
Economic Releases
9:00 am EST
  • The FHFA House Price Index for June is estimated to rise +.4% versus a +.4% gain in May. 
  • The 2Q House Price Index is estimated to rise +1.2% versus a +1.3% gain in 1Q.
  • The S&P/CS 20 City MoM for June is estimated to rise +.13% versus a -.18% decline in May.
9:45 am EST
  • The Preliminary Markit US Services PMI for August is estimated to fall to 55.1 versus 55.7 in July.
10:00 am EST
  • New Home Sales for July are estimated to rise to 510K versus 482K in June.
  • Consumer Confidence for August is estimated to rise to 93.4 versus 90.9 in July.
  • Richmond Fed Manufacturing Index for August is estimated to fall to 10.0 versus 13.0 in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone GDP report, Congressional Budget Office update, weekly US retail sales reports and the $26B 2Y T-Note auction could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.
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Monday, August 24, 2015

Stocks Falling Substantially into Final Hour on China-Bubble Bursting Fears, Surging European/Emerging Markets/US High-Yield Debt Angst, Emerging Market Currency Worries, Energy/Financial Sector Weakness

Posted by Gary .....at 2:52 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Heavy
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 35.11 +25.26%
  • Euro/Yen Carry Return Index 143.82 -.96%
  • Emerging Markets Currency Volatility(VXY) 12.35 +8.33%
  • S&P 500 Implied Correlation 57.99 +.09%
  • ISE Sentiment Index 43.0 -28.33%
  • Total Put/Call 1.18 -29.76%
  • NYSE Arms 1.49 -48.54% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 86.96 +5.31%
  • America Energy Sector High-Yield CDS Index 1,878.0 +.4%
  • European Financial Sector CDS Index 89.57 +6.85%
  • Western Europe Sovereign Debt CDS Index 24.67 +4.29%
  • Asia Pacific Sovereign Debt CDS Index 85.85 +5.69%
  • Emerging Market CDS Index 388.40 +9.41%
  • iBoxx Offshore RMB China Corporates High Yield Index 118.14 -.31%
  • 2-Year Swap Spread 21.25 -1.5 basis points
  • TED Spread 30.25 -1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -18.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .02% unch.
  • Yield Curve 145.0 +2.0 basis points
  • China Import Iron Ore Spot $53.28/Metric Tonne -5.03%
  • Citi US Economic Surprise Index -18.6 -.4 point
  • Citi Eurozone Economic Surprise Index 15.6 -1.3 points
  • Citi Emerging Markets Economic Surprise Index -8.5 +.1 point
  • 10-Year TIPS Spread 1.5 unch.
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 4.49 +.47
Overseas Futures:
  • Nikkei 225 Futures: Indicating -465 open in Japan 
  • China A50 Futures: Indicating -469 open in China
  • DAX Futures: Indicating +38 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my index hedges and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 25% Net Long
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Bear Radar

Posted by Gary .....at 12:53 PM
Style Underperformer:
  • Large-Cap Value -1.50%
Sector Underperformers:
  • 1) Banks -2.73% 2) Homebuilders -2.61% 3) Medical Equipment -2.46%
Stocks Falling on Unusual Volume:
  • EVT, ETV, HPI, HQH, AHP, NIE, HPS, ZIV, STNR, GDV, ADX, TSLX, HQL, CII, EOS, WSR, APU, UTG, QQQX, BONA, ALDW, MRCC, CEO, ETG, RJF, GWR, NWSA, MAT, COG, JLL, WSR, EBIX, SIVB, TLLP, IGT, PLNT, CTXS, SLH, AB, SLCA, OMER, COH, ABT, ADRO, AI, GM, HAWK, FDX, WDR, EWBC, MRO, RGA, WY, XRX, OPK, HTGC, NFX, AOS, TUP, CBG, MIDD, PBF, OPK, ABT, AES, MD, MRO, WY, RMD and HTGC
Stocks With Unusual Put Option Activity:
  • 1) VGK 2) XLY 3) FXY 4) HON 5) EWG
Stocks With Most Negative News Mentions:
  • 1) XOM 2) GM 3) BABA 4) FAST 5) TWX
Charts:
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Bull Radar

Posted by Gary .....at 12:27 PM
Style Outperformer:
  • Large-Cap Growth -1.20%
Sector Outperformers:
  • 1) Semis +1.29% 2) Computer Hardware +.21% 3) Gold & Silver -.83%
Stocks Rising on Unusual Volume:
  • GAS, SCTY, SEDG, ANF, HMSY, SUNE, SWKS, MU and SSI
Stocks With Unusual Call Option Activity:
  • 1) MDY 2) PSX 3) MMM 4) FDX 5) AFL
Stocks With Most Positive News Mentions:
  • 1) ANF 2) HSP 3) TPUB 4) CAPL 5) STNG
Charts:
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Morning Market Internals

Posted by Gary .....at 10:32 AM
NYSE Composite Index:
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Monday Watch

Posted by Gary .....at 12:40 AM
Today's Headlines 
Bloomberg:
  • China Stocks Erase 2015 Gain as State Support Fails to Stop Rout. China’s stocks plunged, with the benchmark index erasing its gains for the year, as government support measures failed to allay investor concerns that a slowdown in the world’s second-largest economy is deepening. The Shanghai Composite Index sank 8 percent to 3,226.14 at 10:50 a.m. local time, dropping below the key 3,500 level that previously spurred state buying. The Hang Seng China Enterprises Index lost 5.3 percent. Taiwan’s Taiex index slid as much as 7.5 percent in its biggest decline since 1990. Worsening economic data and signs of capital outflows are undermining unprecedented government attempts to shore up the country’s $6 trillion stock market. While China said over the weekend it will allow pension funds to buy shares for the first time, a speculated cut in bank reserve ratios failed to materialize. “This is a real disaster and it seems nothing can stop it,” Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co. “If we don’t cut holdings ourselves, the fund faces risk of forced closure. Many newly started private funds suffered that recently. I hope we can survive.” More than 650 stocks fell by the daily 10 percent limit on the Shanghai Composite, including China Shenhua Energy Co. and China Shipbuilding Industry Co . The gauge has tumbled 37 percent from its June 12 peak to wipe out more than $4 trillion of value.
  • China Traders Say Stock Intervention Misguided Amid Slowdown. As the state-directed rally in Chinese stocks unravels, traders say the slowing economy has left the government fighting a losing battle. The Shanghai Composite Index plunged 12 percent last week, erasing all bar one point of the rebound from July’s $4 trillion selloff. For CMB International Securities Ltd. and KGI Securities Co., the gap between the growth outlook and China’s stock valuations, which are the highest among the world’s biggest markets, means further declines are inevitable. While the benchmark stock gauge still traded 57 percent above the levels of a year earlier through Friday, data from industrial output to exports and retail sales depict a deepening slowdown. China’s first major growth indicator for August showed the manufacturing sector is at the weakest since the global financial crisis. The government is “trying to defy market forces at overvalued levels,” said Daniel So, a strategist at CMB International Securities in Hong Kong. Policy makers should “focus on helping the real economy instead of the stock market,” he said.
  • Dwindling reserves force Southeast Asia to escalate currency war. Southeast Asia's dwindling foreign-exchange holdings are exacerbating the risk of a currency war as policy makers have little choice but to allow weaker exchange rates. Malaysian reserves have fallen 19 per cent this year to $US94.5 billion, reducing the central bank's ability to stem a 16 per cent drop in the ringgit. Indonesia's stockpile, which shrunk 6.9 per cent in the five months through July, may come under greater pressure after Bank Indonesia said Friday that it would seek to prevent the rupiah, which is down 11 per cent in 2015, from "overshooting." Regional currencies are retreating across the board as sliding prices for Southeast Asia's commodity exports coincide with a yuan devaluation and the prospect of higher U.S. interest rates.
  • Could China's Yuan Devaluation Spark a New Financial Crisis? Asia’s biggest economy is slowing, the Federal Reserve is about to kick off an interest rate tightening cycle, and China has just devalued its currency. That chain of events back in 1994 eventually touched off a round of competitive currency devaluations that helped trigger the Asian financial crisis, featuring bank and corporate failures and recessions across much of the region. 
  • North Korean Submarines Leave Ports as Talks With South Restart. More than two thirds of North Korea’s submarines have left their ports as Kim Jong Un’s top military aide resumes talks with South Korea over tensions across their heavily fortified border. South Korea is unable to track 70 percent of North Korean submarines and has put its troops on high alert, a military official in Seoul said Sunday by phone. The official declined to say how many submarines that meant. A 2014 Defense Ministry white paper estimates North Korea operates 70 in total. The North has doubled its artillery forces along the border with the South since Friday, said the official, who spoke on condition of anonymity because of the nature of the information.
  • Mideast Stocks Sink as Oil at 2009-Low Sparks Growth Concern. Dubai led a retreat in Middle Eastern stocks that drove Saudi Arabia’s index into a bear market, extending last week’s global selloff, as crude’s decline to a six-year low reverberated through a region dependent on oil and gas exports. The DFM General Index lost as much as 7.5 percent, the most this year. Saudi Arabia’s Tadawul All Share Index tumbled 6.9 percent, taking its decline since 2015’s peak in April to 24 percent. Qatar’s QE Index fell 5.3 percent, while Israel’s TA-25 Index lost 4.1 percent. Egypt’s EGX 30 Index slid the most since November 2012. Gauges in Abu Dhabi and Oman declined more than 10 percent since a recent peak, the threshold for a market correction. Given Saudi Arabia’s stature as “a bellwether for the region, we’ll probably see more declines,” following Tadawul’s slump into a bear market, said Tariq Qaqish, who oversees $150 million as the head of asset management at Al Mal Capital PSC in Dubai. “Saudi Arabia is going to have to cut its spending, especially if oil remains at these levels. Otherwise it’s going to impact growth of the Middle East’s biggest economy.” The Bloomberg GCC 200 Index, which tracks 200 stocks in the GCC, sank the most since October 2008. Abu Dhabi’s ADX General Index declined 5 percent, taking losses since a peak in July to 13 percent. Muscat’s MSM30 Index lost 2.9 percent, down 12 percent from a high in February. The bear market in Saudi Arabian equities marks the second in less than a year. Fitch Ratings on Saturday cut the outlook on the nation’s AA debt rating to negative from stable, indicating its next decision may be to lower its assessment.  
  • Taiwan Stocks Sink Most Since 1990 as China Equity Rout Spreads. Taiwan stocks plunged the most in 25 years, sending the benchmark index to the lowest level since 2012 amid concern that a slowdown in China will derail the island’s economic growth. The Taiex dropped as much as 7.5 percent to 7,203.07 at 10:32 a.m. in Taipei. More than 830 stocks fell, while just 4 rose. Taiwan Semiconductor Manufacturing Co. sank 5.4 percent.  
  • Asian Stocks Head for Two-Year Low as Global Equity Rout Deepens. Asian stocks extended declines as a global rout deepened, pushing a measure of equities around the region toward a two-year low. The MSCI Asia Pacific Index retreated 2.8 percent to 127.83 as of 10:46 a.m. in Tokyo, heading for the lowest close since June 2013, as stock gauges from Sydney to Hong Kong tumbled. Equities worldwide have lost more than $5 trillion in value since China’s shock currency devaluation on Aug. 11, with U.S. shares succumbing to the selloff at the end of last week. “Things are probably going to get worse before they get better,” Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which oversees about $118 billion, said by phone.
  • Commodities Slide to Lowest in 16 Years as Oil Extends Collapse. Commodities sank to the lowest level in 16 years as China’s economic slowdown exacerbates gluts of everything from oil to metals. The Bloomberg Commodity Index, which tracks 22 raw materials, lost as much 1.1 percent to 86.8556 points, the lowest intraday level since August 1999. The gauge, which was at 86.8620 points at 10:30 a.m. in Singapore, has dropped for the past four years. Brent crude slid below $45 a barrel Monday for the first time since 2009 after Iran vowed to raise supply at any cost to defend market share.
  • Commodities Are Cheapest Since 2002, But Maybe Not Cheap Enough. Here’s one more way to measure just how bad the commodity meltdown has gotten: compare the asset class to stocks. The Standard & Poor’s GSCI Index of 24 raw materials is now trading near its cheapest since 2002 compared with the S&P 500 Index of U.S. shares. But if you trust history for providing guidance, that’s still not low enough. During the last big shift from commodity bull markets to bear markets, the ratio dropped even lower. After peaking in October 1980 amid supply shortages, producers responded to higher prices by boosting output. As gluts emerged, the ratio tumbled 96 percent to a record low of 0.1 in February 1999. From shortages to gluts -- sound familiar? Now, with a similar supply shift, the ratio between the commodity and equity indexes is at 0.17, down about 75 percent from its 2008 peak. Assuming the S&P 500 continues to trade where it’s at, the GSCI commodity measure would have to fall a further 43 percent in order for the ratio to reach the 1999 low of 0.1. That’s on top of the 42 percent plunge in the past year.
  • Iran to Raise Oil Output ‘at Any Cost’ to Defend Market Share. Iran plans to raise oil production “at any cost” to defend the country’s market share and joins calls for an emergency OPEC meeting to help shore up crude prices. “We will be raising our oil production at any cost and we have no other alternative,” said Oil Minister Bijan Namdar Zanganeh, according to his ministry’s news website Shana. “If Iran’s oil production hike is not done promptly, we will be losing our market share permanently.”
  • Bullish Oil Bets Sink to 5-Year Low as Futures Flirt With $40. It’s pretty lonely being an oil bull these days. Hedge funds reduced their net-long position in West Texas Intermediate crude to a five-year low last week, days before prices fell below $40 for the first time since 2009. Citigroup Inc. said it could get worse, with the U.S. benchmark slumping to $32 on a persisting supply glut. Futures are mired in the longest slide since 1986, weighed down by nearly 100 million-barrel supply glut. A spate of outages and fires has sapped U.S. refiners’ capacity to consume the stockpiles before plants shut for seasonal maintenance. Gasoline demand, which has been averaging the highest since 2007, is poised to decline after the Labor Day holiday in early September. The net-long position in WTI slipped by 6,342 contracts, or 6.4 percent, to 93,406 futures and options in the week ended Aug. 18, U.S. Commodity Futures Trading Commission data show. Shorts fell 2.7 percent while longs plunged by 4.1 percent.  
  • Fortescue Full-Year Earnings Plunge 88% on Iron Ore Collapse. Billionaire Andrew Forrest’s Fortescue Metals Group Ltd. reported full-year profit tumbled a more-than-expected 88 percent after iron ore prices plunged on a global glut and a slowdown in China’s steel industry. Net income was $317 million in year ended June 30, compared with $2.7 billion a year earlier, the world’s fourth-biggest exporter said Monday in a statement. That missed the $417 million average of 12 analysts’ estimates compiled by Bloomberg, sending the stock down the most in nine months in Sydney.
  • BlueScope May Shutter Australian Steelmaking on China, Prices. BlueScope Steel Ltd. warned it may shutter its Australian and New Zealand steelmaking operations after prices plunged amid increased exports from China. The company, which has a century-long history of steelmaking in Australia, said it needs government support to keep operating its two remaining primary plants at Port Kembla and Glenbrook. This is even though it’s targeting more than A$200 million ($145 million) in cost savings as part of a review.
  • Hedge Funds Can’t Exit Crop Markets Fast Enough Amid Big Supply. With excesses building in everything from cotton to wheat, hedge funds can’t seem to get away from crop markets fast enough. Bumper global harvests and slowing demand will push combined inventories of corn, soybeans and wheat to a record, according to U.S. government data. Those bountiful supplies prompted money managers to lower their bets on higher prices for a fifth straight week, U.S. government data show. Trading has become more volatile as prices have dropped. The Bloomberg Agriculture Index of eight farm products has declined 15 percent this year, with the measure’s 60-day volatility last week reaching the highest since 2012. “We’ve seen the volatility in the agricultural space as of late,” said Paul Springmeyer, a Minneapolis-based senior portfolio manager at Private Client Reserve at U.S. Bank, which oversees $127 billion. “Most people are trying to reign in the risk in their portfolio, and one way of doing it is just avoiding the space.” Combined positions across 11 agricultural products fell 21 percent to 183,929 futures and options in the week ended Aug. 18, U.S. Commodity Futures Trading Commission data show. The holdings have dropped 67 percent in five weeks. 
  • The Fed Is Looking at a Very Different Dollar Than Wall Street. (graph) That may spell trouble for investors. By many popular measures, the dollar has traded sideways for the last six months. Then there's the Federal Reserve's measure. The greenback is surging, according to an index the Fed created to track the U.S. currency versus 26 of the country's biggest trading partners. It's risen 1.3 percent beyond a 12-year high reached in March, when the central bank fired the first of a series of warnings that a stronger dollar may hurt growth and lower inflation.
  • Stock Rout Was Inevitable to Leuthold’s Ramsey, And Will Worsen. Doug Ramsey, whose quantitative research into market breadth, valuation and investor sentiment foreshadowed the drubbing in American stocks last week, says the selling will get worse. The chief investment officer of Leuthold Weeden Capital Management LLC predicted Sunday that losses in the Standard & Poor’s 500 Index could reach 20 percent. Last week’s decline left the benchmark index down 7.5 percent from its May record. “It’s going to be pretty deep,” Ramsey said in a telephone interview. “We’re in the camp that this is not yet a big move. It’s scary, and those last two day trends look ugly.” A report by the Minneapolis-based money management firm predicted in early August that the “next big move in stocks should be down” as industries and individual shares peeled away from the 6 1/2-year-old bull market. Should the current plunge worsen, the Federal Reserve would probably postpone raising interest rates, he said. “The Fed didn’t put any bullets back in the revolver when they had the chance,” Ramsey said. “I have to believe that if the correction exceeds 10 percent, we’ll start to hear talk of QE4, and any discussion of the first fed funds rate hike would be tabled.”
  • S&P Bulls Are Betrayed By Their Most Loved Stocks. Why have investors been pulling money from U.S. equities at the fastest rate ever? Maybe it’s because the stocks they love the most are the ones giving them the most heartache. From Apple Inc. to Alcoa Inc. to General Electric Co., the 50 companies in the Standard & Poor’s 500 Index with the highest share volume were down 5.7 percent over the three months through July, five times as much as the broader market. That’s the worst underperformance since 2011 and came right before American stocks staged their biggest selloff in four years, data compiled by Bank of America Corp. and Bloomberg show. While heavily traded shares are usually losers in routs, what’s notable now is that they’ve been falling in a market that hasn’t moved much in 2015 even with last week’s plunge. It was pain below a surface of placidity, with losses concentrated in the companies that individuals pay the most attention to.
Wall Street Journal:
  • Foreign Car Factories Curb Output in China. Makers including GM and VW run Chinese plants at less than full capacity as sales slow. China’s foreign-car factories, once among the world’s busiest, are starting to slack off. New weakness in the world’s largest car market has led companies such as General Motors Co. and Volkswagen AG to run their plants there at less than full capacity for the first time, according to industry data. The global auto makers, which have been some of the biggest beneficiaries of Chinese
Fox News:
  • 3 Americans recount how they subdued Paris train gunman. The three Americans hailed as heroes for tackling a man carrying an AK-47 on a Paris-bound train and stopping the gunman from killing those onboard spoke publicly of the encounter for the first time Sunday at the U.S. Embassy in Paris. U.S. Airman Spencer Stone, 23, National Guardsman Alek Skarlatos, 22, from Roseburg, Ore., and their friend, Anthony Sadler, 23, recounted how they overpowered the gunman, a suspected Islamic militant, as the train sped through Belgium Friday.
MarketWatch.com:
CNBC:
  • El-Erian: We need either better econ news or EM policy intervention. (video) Investors will be in for a rough ride moving forward, as this current selloff is not over yet, said Mohamed El-Erian, chef economic adviser at Allianz. "We haven't seen one of two things that we need. Either we need better economic news to calm concerns about an accelerating global slowdown, or some policy intervention, not from the ECB or the Fed ... but that holds in the emerging world," El-Erian told CNBC on Sunday. 
Zero Hedge:
Business Insider:
New York Times:
  • Investors Race to Escape Risk in Once-Booming Emerging-Market Bonds. The large mutual funds that helped fuel rapid growth in developing countries have begun hastily retreating from those investments, contributing to the recent sharp decline in global markets. In the last week alone, investors pulled $2.5 billion from emerging-market bond funds, the largest withdrawal since January 2014.
Financial Times:
  • Market turmoil leaves tech sector exposed. Investors are wary of the technology sector’s prospects this week after one of the market’s remaining bulwarks fell victim to the widespread equities rout late last week amid growing fears over the Chinese economy. Friday’s tumble deepened a slide that left some of the best-known tech names nursing even bigger losses than the rest of the market, with Apple, Microsoft and Intel each falling nearly 9 per cent during the week.
Telegraph:
Night Trading
  • Asian indices are -5.0% to -2.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 144.75 +13.0 basis points.
  • Asia Pacific Sovereign CDS Index 81.25 +4.0 basis points.
  • S&P 500 futures -2.34%.
  • NASDAQ 100 futures -3.95%.

Earnings of Note
Company/Estimate 
  • None of note
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for July is estimated to rise to .2 versus .08 in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking and the Eurozone Manufacturing PMI could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and industrial shares in the region. I expect US stocks to open sharply lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.

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