BETWEEN THE HEDGES

Wednesday, February 17, 2010

Stocks Higher into Final Hour on Falling Euro Sovereign Debt Angst, Short-Covering, Less Economic Fear

Posted by Gary .....at 3:39 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Medical longs and Retail longs. I added to my (ASEI) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, most sectors are rising and volume is about average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -1.66% and is above average at 21.88. The ISE Sentiment Index is below average at 106.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running above average most of the day, hitting 1.11 at its intraday peak, and is currently .93. The Euro Financial Sector Credit Default Swap Index is falling -4.36% to 94.91 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling -4.02% to 96.15 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -5.49% to 28.06 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +4 bps to 2.29%, which is down -36 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Commodity and Transport shares are relatively weak. Market leading stocks are mixed. The Euro is giving back all of yesterday’s gains as the currency continues to trade very heavy. Commodities are mostly ignoring the strong US dollar today, however a Euro break below 1.35 will likely lead to another move lower in most commodities. On the positive side, Education, HMO, Biotech, Medical, Disk Drive, Steel, Ag and Defense shares are especially strong, rising 1.0%+. (IYR) has traded well throughout the day. The Western Europe Sovereign Debt CDS is dropping -3.05%, with the Spain CDS falling -9.1%, which is a large positive. The decline in the Euro today looks more related to euro region growth concerns rather than rising sovereign debt fears. One of my longs, (DISCA), is jumping +9.6% on heavy volume with the news of its impending inclusion in the S&P 500 Index. I would still be a buyer of the shares on any market-related pullback from current levels. Notwithstanding some morning weakness, the bears appear to lack conviction. Another meaningful move lower in CDS could spur another round of short-covering. However, over the coming weeks I suspect the Euro region sovereign debt issues will resurface as a market headwind. Nikkei futures indicate an +54 open in Japan and DAX futures indicate an +5 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, declining Euro region sovereign debt angst and technical buying.

Today's Headlines

Posted by Gary .....at 2:46 PM

Bloomberg:

- The Federal Reserve said its top officials last month debated how and when to shrink the central bank’s $2.26 trillion balance sheet, with some policy makers pushing to start selling assets in the “near future.” Officials unanimously agreed that Fed assets and banks’ excess cash will need to shrink “substantially over time” and return the central bank’s holdings to just Treasuries, the Fed said in minutes of the Jan. 26-27 Federal Open Market Committee meeting, released today in Washington. Policy makers also considered changing the statement to refer to “holdings” of mortgage-backed securities instead of “purchases.” The report shows differences over how to exit the Fed’s record credit expansion that Fed Chairman Ben S. Bernanke left out of Feb. 10 congressional testimony. Bernanke said he didn’t expect any asset sales in the “near term” and that any such sales in the future would be at a “gradual pace” and reflect the Fed’s assessment of the economy. “Most judged that a future program of gradual asset sales could be helpful” to shrink the balance sheet, while some officials were concerned about disrupting financial markets and the economy, the minutes said. “Several thought it important to begin a program of asset sales in the near future,” including spreading sales “over a number of years,” according to the report.

- The US dollar rose to its highest level in two weeks against the yen on better-than-expected housing and manufacturing reports before the release of the Federal Reserve’s January minutes. The euro slid from the highest level this week versus the dollar after a political ally of Germany’s Chancellor Angela Merkel said “not a single euro” should go to Greece. The yen fell against most of its major counterparts including the Brazilian real and South African rand as signs of a U.S. economic recovery spurred demand for higher-yielding assets. “Because of the U.S. economic improvement, the dollar is in a better fundamental position than the yen,” said Jessica Hoversen, a foreign-exchange and fixed-income analyst at the futures broker MF Global Ltd. in Chicago. “There’s more risk appetite, and traders are focusing on the yen as the carry currency.”

- Martin Sommerseth Jaer, an Oslo-based analyst with Arctic Securities ASA, comments by e-mail today on the supply of supertankers competing to haul cargoes of Middle East crude. Ballasting means sailing a ship empty. “We are currently counting 90 vessels in the Arabian Gulf over the next 30 days, up from a mere 66 vessels nine days ago.” “Our data show practically all vessels expected in the Arabian Gulf are ballasting from Asia” and are not going to West Africa. Freight derivatives contracts indicate income from shipping Middle East crude oil to Asia will drop 21% to $21,300 a day by the second quarter, offering “little optimism” to vessel owners.

- Don’t call it a renaissance yet, says John Rowe, who oversees the biggest fleet of nuclear reactors in the U.S. President Barack Obama’s announcement yesterday that the government will guarantee loans for the country’s first new nuclear plants in 30 years is a necessary move that won’t in itself spur a revival of the dormant industry, said Rowe, chief executive officer of Chicago-based Exelon Corp. “We may see more and faster development of new plants now,” said Rowe, whose company operates 17 reactors. “We probably won’t see a full-blown nuclear renaissance in the next five to 10 years.”

- Indonesia will welcome President Barack Obama’s efforts to increase trade when he visits next month as more U.S. companies shift some production to Southeast Asia from China, Trade Minister Mari Pangestu said. “What we are seeing is a diversification of sourcing from U.S. companies away from China toward Indonesia in a number of areas, such as footwear, textiles and clothing and furniture,” she said in an interview with Bloomberg Television in Jakarta today. “We do see a lot of prospects there with increased interest from U.S. buyers coming to Indonesia.”

- Deere & Co.(DE), the world’s largest maker of farm equipment, reported fiscal first-quarter profit that topped analysts’ estimates and raised its 2010 forecast as the company benefited from lower raw-material costs. Deere shares rose the most in three weeks. Net income rose to $243.2 million, or 57 cents a share, from $203.9 million, or 48 cents, a year earlier, the Moline, Illinois-based company said today in a statement. Analysts, on average, projected profit of about 19 cents. Sales declined 6 percent to $4.84 billion in the quarter ended Jan. 31.

- Industrial production in the U.S. rose more than anticipated in January as factories churned out more consumer goods and business equipment, leading the recovery of the world’s biggest economy. The 0.9 percent increase in production at factories, mines and utilities followed a 0.7 percent gain the prior month, according to the Federal Reserve in Washington.

- The Standard & Poor’s 500 Index may rise to between 1,250 and 1,300, said Abby Joseph Cohen, the Goldman Sachs Group Inc. strategist known for calling the bull market in the 1990s. The S&P 500, which closed at 1,094.87 yesterday, would need to rise as much as 19 percent to reach the high end of Cohen’s prediction.

Wall Street Journal:

- Germany and France have suggested in recent days that rescuing Greece may be necessary to safeguard the euro zone, but both countries may have a more pressing motivation in the move—protecting their own banks. German and French banks carry a combined $119 billion in exposure to Greek borrowers alone and more than $900 billion to Greece and other countries on the euro-zone's vulnerable periphery: Portugal, Ireland and Spain. Together, France and Germany's banking sectors account for roughly half of all European banks' exposure to those countries. Nearly half of the outstanding debt is with Spain, according to data from the Bank for International Settlements. The data include government bonds, corporate debt and loans to individuals. Concern over the exposure has helped to drive down bank stocks in recent weeks. The DJ Stoxx European bank index has fallen 12.5% over the past month against a 7% decline of the broader pan-European index. Among big decliners have been Germany's Commerzbank, which has fallen 15% over that period and France's BNP Paribas, which dropped 14%.

- The mounting political tension between U.S. and China is poised to take on a more pronounced economic component—with Washington, in coming months, expected to press China over what officials see as an undervalued yuan. This week, China is facing off with the U.S. over President Barack Obama's planned meeting Thursday with Tibet's exiled spiritual leader the Dalai Lama, whom Beijing alleges has pushed for Tibetan independence from China. That comes on top of January's announcement that the U.S. would sell $6.4 billion worth of arms to Taiwan, which Beijing claims as part of its territory, and continuing sparring over a cyberattack on Google Inc. widely seen as originating in China. The two sides have also disagreed over whether to sanction Iran over its nuclear program.

CNBC:

- Fiorina: Boomers Mortgaging Our Children’s Future. As parents and grandparents, many of whom are part of the Baby Boomer generation (including myself), we always think about what is best for our children and grandchildren. We encourage them to make smart decisions. We want them to excel and succeed. The very fundamental ideal of the American Dream is to build a better future for the next generation. The same must be true in government as it is in our personal lives. In every policy decision, we must consider both its short-term and long-term effects. In no other place is this more apparent than in our fiscal legacy. The policy decisions made in Washington have caused our national debt to hit its highest level in history. Our federal deficit is rising rapidly and it is our children who will pay the price. We’re supposed to be building a stronger future for our children and grandchildren. Instead, we’re saddling them with more debt and less opportunity.

NY Times:

- A New York Times(NYT) reporter accused of plagiarizing portions of several articles resigned from the newspaper on Tuesday, according to two people briefed on the matter. The reporter, Zachery Kouwe, who had already been suspended, met late Tuesday afternoon with representatives of The Times, The NY Times Company and the Newspaper Guild of New York. The participants were to discuss possible disciplinary action, including dismissal, but instead Mr. Kouwe resigned.

The Business Insider:

- According to an internal communication with employees, AOL (AOL) plans to expand Patch, its network of local news blogs, from 30 sites to "hundreds," by the end of 2010. The goal: "To be leaders in one of the most promising 'white spaces' on the Internet." In the same communication, AOL said it wants to be "the global and local leader in sourcing, creating, producing and delivering high quality content."

- Eurostat now suspects that other European nations, potentially even crisis-stricken Italy, could be hiding the extent of their debt problem using swaps just like Greece has. If multiple nations have been fooling the Eurozone's own statistical office, then we really can't be sure what the Eurozone's aggregate financial situation really is, now can we. This could be bad news for the euro if the practice was widespread:

- How Can Obama Be Taking A Stimulus Victory Lap, When We Don’t Even Know Where The Money Went by Sarah Palin.

- Goldman Sachs Group Inc.(GS) spent $690,000 during the fourth quarter to lobby the federal government on issues related to regulating the banking industry. The $690,000 spent compares with $530,000 the New York-based bank spent during the same quarter a year earlier when the credit crisis was peaking. Goldman spent $840,000 to lobby the government during the third quarter.

FINalternatives:

- A suburban Michigan public pension fund is preparing to take the plunge into hedge funds. The Oakland County Employees’ Retirement System recently allocated 5% of its $1.5 billion to long/short equity hedge funds. The strategy is a new one for the system, located north of Detroit, recommended by its consultant, Asset Consulting Group, last year.

Rassmussen:

- President Obama today declared that the $787-billion economic stimulus plan he signed into law one year ago saved the country from a second Depression, but voters aren’t quite so sure. A new Rasmussen Reports national telephone survey finds that 35% of voters agree that the economic stimulus plan has helped the economy, but nearly as many (33%) believe it has hurt the economy. Twenty-six percent (26%) say it has had no impact at all. Last year at this time, 38% of voters said the stimulus plan would help the economy, while 29% believed it would hurt. Twenty-four percent (24%) expected it to have little impact.

Politico:

- House Republicans are taking a page from the president's playbook by challenging Democrats to a televised debate about job creation. The top two Republicans in the House sent a letter Wednesday daring their counterparts — Speaker Nancy Pelosi and Majority Leader Steny Hoyer - to engage in a public discussion over ways Congress can provide a boost to the economy.

Mediaite:

- CPAC hasn’t even officially started and already its making news. Mediaite has learned that leading center-right web site Hot Air has been acquired by Salem Communications for an undisclosed sum. Hot Air is one of the biggest, most influential conservative sites on the Web and was launched on April 24, 2006, with Michelle Malkin as founder/CEO (though she remains editorially focused on her own blog MichelleMalkin.com and her own writing and television appearances.)

zerohedge:

- Legendary futures trader, Dennis Gartman, says the euro has had it, and has a long way to go before it finds a bottom. He is urging investors to short the European currency and go long Canadian and Australian dollars against it. They may resolve Greece, but not Portugal, Spain, or Italy.

Salon.com:

- The 11 Democrats who will decide the fate of healthcare reform. To pass healthcare reform through reconciliation, Senate Democrats need at least two of these wavering votes.

Financial Times Deutschland:

- The European Central Bank wants Greece to cut its budget deficit by an additional $2.75 billion, citing EU officials. A team of financial experts of the EU Commission and the ECB will visit the country in the next several days.

CBCNews:

- North American Islamic groups are urging Muslim travelers to choose to be patted down by airport security rather than go through airport body scanners, which they say violate religious and privacy rights. The Fiqh Council of North America (FCNA) said the scanners, which produce a three-dimensional outline of a person's naked body, are "against the teachings of Islam, natural law and all religions and cultures that stand for decency and modesty."

Al-Rai:

- OPEC may have to review quotas for a probable increase in Iraqi output in the next several years, Kuwaiti OPEC delegate Mohammed al-Shatti writes. The increase, to as much as 10 million barrels a day, will have an extreme impact on the market, al-Shatti said.

Bear Radar

Posted by Gary .....at 2:17 PM

Style Underperformer:
Mid-Cap Value (+.13%)

Sector Underperformers:
Gold (-1.56%), Semis (-1.05%) and Coal (-.74%)

Stocks Falling on Unusual Volume:

PAAS, BP, TM, TNE, CLF, BT, CLMT, GSIC, MASI, RICK, SIRO, AMMD, ENOC, VMI and OC

Stocks With Unusual Put Option Activity:
1) CF 2) CSIQ 3) TRA 4) SOHU 5) CBS

Bull Radar

Posted by Gary .....at 11:19 AM

Style Outperformer:
Mid-Cap Growth (+.37%)

Sector Outperformers:
HMOs (+2.54%), Ag (+1.20%) and Education (+1.13%)

Stocks Rising on Unusual Volume:
WLP, ADSK, BAC, XEC, DISCA, WFMI, CSTR, WINN, MEND, PERY, HUSA, AUXL, CAGC, DISCK, AFSI, ACGY, SNDK, HSII, CTEL, GIVN, FELE, ODSY and ABFS

Stocks With Unusual Call Option Activity:
1) JCP 2) LLL 3) UHS 4) MNKD 5) WFMI