North American Investment Grade CDS Index 109.73 bps +1.62%
European Financial Sector CDS Index 116.50 bps +1.54%
Western Europe Sovereign Debt CDS Index 139.66 bps +2.12%
Emerging Market CDS Index 233.26 bps +2.08%
2-Year Swap Spread 20.0 unch.
TED Spread 21.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% +1 bp
Yield Curve 208.0 -7 bps
China Import Iron Ore Spot $148.30/Metric Tonne unch.
Citi US Economic Surprise Index -57.30 +.1 point
10-Year TIPS Spread 1.62% -3 bps
Overseas Futures:
Nikkei Futures: Indicating -57 open in Japan
DAX Futures: Indicating -11 open in Germany
Portfolio:
Slightly Higher: On gains in my Tech long positions
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and then added them back
Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 is trading lower, still below its 50-day moving average, despite a bounce higher in Chinese equities and the euro. On the positive side, Disk Drive, Airline, Steel and Gold stocks are especially strong, rising .75%+. Small-Caps are outperforming. The Libor-OIS and TED spreads continue to trend lower. Tech shares are trading somewhat again better today. Copper is +.7% higher on the day. On the negative side, Education, Insurance, Medical Equipment and I-Banking shares are especially weak, falling .75%+. The Greece sovereign cds is rising +4.92% today to 866.37 bps, the Ireland sovereign cds is jumping another +7.66% to 295.49 bps and the European Investment Grade CDS Index is rising +3.33% to 109.08 bps. The 10-year yield is falling another -10 bps to 2.57%. The market has proven resilient despite today's poor economic data, however volume remains very light and the bulls were unable to capitalize meaningfully on this morning's reversal higher. It appears as though quite a bit of short-covering is going on today. The move higher in the eurozone cds indices has become a worry again. I will closely monitor the market's reaction to tomorrow's economic data and Ireland's government bond auction before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on rising economic fear, sovereign debt concerns, technical selling and China worries.
Economic Growth Prospects Dim in U.S. After Retail Sales, Trade Reports. Prospects for U.S. economic growth took a hit this week after reports showed the trade deficit swelled and consumers reined in spending. Economists at Morgan Stanley reduced their estimate for third-quarter consumer spending following a report showing retail sales rose less than forecast in July. A record jump in the trade gap for June capped figures that indicated the world’s biggest economy grew at least a percentage point less than the 2.4 percent pace the government estimated last month.
Google(GOOG) Leads Revival in Commercial Paper as Rates Tumble: Credit Markets. Google Inc., owner of the most popular Internet search engine, and Germany’s Merck KGaA are leading a revival in commercial paper as nonfinancial companies grab the biggest share of the $1.1 trillion U.S. market from banks since 2002 amid lower borrowing costs. Industrial borrowers have $151 billion of debt typically due in 270 days or less, up 47 percent this year and 14 percent of the total outstanding, seasonally adjusted Federal Reserve data show.
Crude Oil Drops to 1-Month Low After Retail Sales Fall Short of Estimates. Crude oil fell, capping its worst week in six, after sales at U.S. retailers rose less than forecast in July, a sign that economic growth is slowing. Oil dropped to a one-month low as a lack of jobs prompted Americans to hold back on spending, according to figures from the Commerce Department. U.S. gasoline inventories increased for a seventh week last week, the government said on Aug. 11. “The economic picture is unsettled,” said Gene McGillian, an analyst and broker at Tradition Energy, a procurement adviser in Stamford, Connecticut. “The fundamentals are weak, with high inventories and weak demand, so the market has a hard time holding above $80.” Oil supplies were 8.1 percent above the five-year average last week, according to the Energy Department. Rigs exploring for and producing oil climbed by 25 to 636, the highest level since January 1991. Demand for gasoline fell 2.5 percent to 9.24 million barrels a day last week, the Energy Department reported. Crude oil ended the week below its 200-week moving average for the first time since the seven days ended July 16, a technical indicator that prices will extend declines.
Afghanistan Says It Located 1.8 Billion-Barrel Oilfield in Nation's North. Afghanistan discovered an oilfield containing an estimated 1.8 billion barrels of crude in the north of the country, a Mines Ministry official said. If proven, the resource would be more than 10 times the size of the country’s oil reserves, assessed at more than 150 million barrels by the U.S. Geological Survey. “A huge oil resource, which looks like a triangle, with an estimated 1.8 billion barrels of oil, has been discovered by Afghan geologists in cooperation with international geologists between Balkh and Sheberghan provinces,” Jawad Omar, a spokesman for the ministry, said in a phone interview today from the capital, Kabul.
Ban Says Pakistan Floods are Worst Natural Disaster as 20 Million Uprooted. United Nations Secretary-General Ban Ki-moon said devastation caused by unprecedented flooding in Pakistan was among the worst he had ever seen, as he promised more relief funds for those who have lost homes and farms. “This has been a heart-wrenching day for me,” Ban said yesterday at a press conference with Pakistani President Asif Ali Zardari. “I will never forget the destruction and suffering I have witnessed today. In the past, I have witnessed many natural disasters around the world, but nothing like this.”
California City With $800,000 Manager Raised Taxes Improperly. The California city whose chief administrator was paid $800,000 a year improperly increased local property taxes to cover pension costs, the state’s controller said. The City Council in Bell, a Los Angeles suburb where poverty affects more than one in four, in 2007 raised property- tax rates higher than allowed by law, state Controller John Chiang said today in a statement. The extra tax cost residents as much as much $3 million above what they owed, he said.
Watson's(WPI) Morning-After Pill Wins U.S. FDA Approval. Watson Pharmaceuticals Inc. and HRA Pharma won U.S. approval for an emergency contraceptive that women can take up to five days after sex and will compete with Teva Pharmaceutical Industries Ltd.’s Plan B morning-after pill. Watson will start selling the pill, to be called Ella, in the final three months of this year, the Corona, California- based company said today in a statement. The drug will be dispensed as a single dose and requires a prescription.
Goldman Sachs(GS) Chief Blankfein Reaps $6.1 Million From Exercising Options. Lloyd C. Blankfein, Goldman Sachs Group Inc.’s chairman and chief executive officer, made $6.1 million by exercising options granted to him in 2000 that were due to expire in November. The options allowed Blankfein, 55, to buy 90,681 shares for $82.875 apiece and sell them at prices ranging from $148.97 to $152 each on Aug. 11, according to a filing yesterday with the Securities and Exchange Commission. Gary D. Cohn, Goldman Sachs’s president, made a $4.95 million profit by exercising 73,653 options and David A. Viniar, the chief financial officer, reaped $4.52 million by exercising 67,326 options, separate filings showed.
Kaine Says Democrats to Spend Record $50 Million on Elections. The Democratic National Committee, facing an “uphill” fight to keep its party in control of Congress, plans to spend a record $50 million on this year’s election campaigns, said Chairman Tim Kaine.
Goldman Sachs(GS) Undercuts Rivals in General Motors IPO as It Loses Top Role. Wall Street banks led by JPMorgan Chase & Co.(JPM) and Morgan Stanley(MS) stand to make a combined $120 million on General Motors Co.’s initial public offering. If it weren’t for Goldman Sachs Group Inc., they could have made four times as much.
Wall Street Journal:
Bank of America(BAC) Has BlackRock(BLK) Stake On Its Mind. Bank of America Corp. has concluded that its 34% share of BlackRock Inc. isn't a core asset and is weighing a possible reduction of its holdings in the influential New York asset manager, said people familiar with the situation.
'Super Angels' Alight. Much of the venture-capital industry is undergoing a shakeout. But a growing breed of start-up investors dubbed "super angels" is rapidly raising new money—and ratcheting up competition with established venture capitalists in the process.
Another Threat to Economy: Boomers Cutting Back. America's baby boomers—those born between 1946 and 1964—face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they'll have to spend in retirement.
White House Under Fire for Unspent Infrastructure Cash. The Obama administration has paid out less than a third of the nearly $230 billion allocated to big infrastructure projects in the economic-stimulus program. Now Republicans are zeroing in on the unspent stimulus money in fresh attacks on the administration's economic policy.
The End of American Optimism by Mortimer Zuckerman. Our brief national encounter with optimism is now well and truly over. We have had the greatest fiscal and monetary stimulus in modern times. We have had a whole series of programs to pay people to buy cars, purchase homes, pay off their mortgages, weatherize their homes, and install solar paneling on their roofs. Yet the recovery remains feeble and the aftershocks of the post-bubble credit collapse are ongoing.
Japan's Growth Slows Down Sharply Amid Yen Worries. Japan's economic growth slowed markedly in April-June and analysts predict further slowdown, adding to policymakers' difficulties as they grapple with deflation and a rise in the yen that threatens an export-reliant recovery. Slowing growth in Japan's key export destinations such as the United States and China clouds the outlook, while policymakers step up efforts to talk down the yen after it surged to a 15-year high against the dollar this month of 84.72 per dollar. "I think the Bank of Japan and the government need to take decisive action against currency moves. Solo currency intervention is possible if the yen approaches 80 to the dollar. If that is accompanied by monetary easing by the Bank of Japan, it may have a certain effect," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. The quarterly expansion of 0.1 percent in gross domestic product (GDP) translates into an annualised growth of 0.4 percent, well below the median market forecast of 2.3 percent annualised growth and much less than the 2.4 percent annualised growth in the United States in the same quarter.
Workers Let Go by China's Banks Putting Up Fight. A few days after the Agricultural Bank went public, dozens of former bank employees stealthily gathered outside the headquarters of the country’s central bank. There, after distributing small Chinese flags, they quickly pulled on red and blue T-shirts that read, “Protect the Rights of Downsized Bank Workers.” By the time they unfurled their protest banners, the game was over. Within minutes, a flock of police officers had swept everyone into five waiting public buses. By 8 a.m., when the People’s Bank of China opened its doors for business, the only sign of the rally was a strand of police tape. During the past two years, these unlikely agitators — conservatively attired but fiercely determined — have staged similar public protests in Beijing and provincial cities. They have stormed branch offices to mount sit-ins. A few of the more foolhardy have met at Tiananmen Square to distribute fliers before plainclothes police officers snatched them away. Strategizing via online message boards and text messages, they speak in code and frequently change cellphone numbers. Their acts of defiance are never mentioned in state-run news media.
Latest Harvard Filing Shows Total Divestment of Israeli Stocks. For years, activists professors and students at Harvard have urged the university to divest itself of any investments in Israel, in protest of the nation's policies towards the Palestinians. So has the university finally given in? Globes Online reports:
Apple(AAPL) Manager Arrested in Kickback Scheme. A mid-level Apple manager was arrested and accused of accepting more than $1 million in kickbacks from half a dozen Asian suppliers of iPhone and iPod accessories, according to a federal indictment unsealed Friday and a separate civil suit. Paul Shin Devine, a global supply manager, and Andrew Ang, of Singapore, were named in a 23-count federal grand jury indictment for wire fraud, money laundering and kickbacks.
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Mosque Flap Swirls Around Obama. The White House on Saturday struggled to tamp down the controversy over President Barack Obama’s statements about a mosque near ground zero — insisting Obama wasn’t backing off remarks Friday night when he offered support for a project that has infuriated some families whose loved ones died in the Sept. 11 attacks. Obama’s comments placed him in the middle of the controversy over a Muslim group’s plans for a mosque near the site of the 2001 attack — and in turn, transformed an emotion-laden local dispute in New York into a nationwide debate overnight. Republicans pounced, amid early signs that the issue would seep into some state and congressional contests. “It is divisive and disrespectful to build a mosque next to the site where 3,000 innocent people were murdered at the hands of Islamic extremism,” said Florida GOP Senate candidate Marco Rubio. His opponent, Gov. Charlie Crist, a Republican-turned-independent, came out in support of Obama’s comments. And Democrats — at least those who were willing to comment — could barely contain their frustration over Obama’s remarks, saying he had potentially placed every one of their candidates in the middle of the debate by giving GOP candidates a chance to ask them point-blank: Do you agree with Obama on the mosque? That could be particularly damaging to moderate Democrats in conservative-leaning districts, already 2010’s most vulnerable contenders. “I would prefer the president be a little more of a politician and a little less of a college professor,” former Rep. Martin Frost (D-Texas), who once ran the House Democratic campaign arm, wrote in POLITICO’s Arena.
S.C. Dems Likely Stuck With Greene. Democrats have been gloating over the unorthodox Republican candidates around the country this year but one of their own broke back into the headlines Friday — Alvin Greene of South Carolina, indicted on a felony pornography charge. And there doesn’t seem to be anything Democrats can do about it.
AP:
WikiLeaks Says It Won't Be Threatened by Pentagon. WikiLeaks will publish its remaining 15,000 Afghan war documents within a month, despite warnings from the U.S. government, the organization's founder said Saturday. The Pentagon has said that secret information will be even more damaging to security and risk more lives than WikiLeaks' initial release of some 76,000 war documents. "This organization will not be threatened by the Pentagon or any other group," Julian Assange told reporters in Stockholm.
Financial Times:
US Banks Get Securities Buy-Back Window. The Dodd-Frank financial reform bill has opened a 90-day window for banks to buy back $118bn (€92bn) in high-cost securities, a move that would enable them to replace the instruments with cheaper capital but is likely to cause tensions with regulators and investors. Wall Street executives and lawyers say several banks are considering redeeming “trust preferred securities” (Trups) – a hybrid of debt and equity – by taking advantage of a clause triggered by the new rules.
Telegraph:
Prison Doctor Who Played Key Role in Release of the Lockerbie Bomber Had No Specialist Cancer Knowledge. Dr Peter Kay, who had until recently only been identified by the Scottish Government as an unnamed "primary care physician" of Abdelbaset Ali Mohmed al-Megrahi's, provided a crucial medical report which led to the conclusion that the prisoner was likely to have three months, or less, to live. The life expectancy of Megrahi was crucial because, under Scottish rules, prisoners can be freed on compassionate grounds only if they are considered to have this amount of time or less to live. This Friday will be the anniversary of Megrahi's release prompting celebrations across Libya in which he will be feted as a national hero. The fact that Megrahi has lived so long in Libya has incensed many of the relatives of those who died in the bombing in December 1988 when Pan Am Flight 103 exploded in mid air over Lockerbie, Scotland, killing 243 passengers, 16 crew and 11 people on the ground.
US and China to Clash Over Yuan Fall. China is on a collision course with Washington after steering its currency sharply lower to protect its export industries, despite a near record trade surplus of $29bn (£19bn) in July. The yuan dropped at the fastest pace in almost two years last week and is now 1.8pc lower against a basket of currencies than in June, when Beijing announced the end to its fixed peg against the dollar. Western economists had seen yuan liberalisation as a sign that China is abandoning its mercantilist policy in a step-by-step move towards a floating currency, which was expected to rise. They misjudged China's motives badly.
Economic Daily News:
Asustek Computer Inc. reduced its forecast for 2010 shipments of notebook computers to between 16 million and 17 million, from the 18 million earlier expected, citing President Jerry Shen.
Taiwan Semiconductor Manufacturing Co. may cut the prices of chips made by 40-nanometer technology.
Economic Observer:
China has started a more expansive round of checks into the financing arms of local governments. China's Ministry of Finance, the National Development and Reform Commission, the People's Bank of China and China Banking Regulatory Commission have ordered their local offices to continue a "clean up" of the financing vehicles. A joint report will be submitted by the end of October.
Shanghai Securities News:
The China Banking Regulatory Commission is currently coordinating with the Ministry of Housing and Urban-Rural Development on compiling a list of property developers that are hoarding apartments, citing a personal familiar with the situation. The list would help banks to gain a better grasp of risks when making loans.
Weekend Recommendations Barron's:
Made positive comments on (CSTR), (GOOG), (KO), (DIS), (MCK) and (JCI).
Citigroup:
Reiterated Buy on (DE), boosted estimates, raised target to $75.
Night Trading
Asian indices are -.75% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 122.50 +.5 basis point.
Asia Pacific Sovereign CDS Index 117.75 +4.25 basis points.
Empire Manufacturing for August is estimated to rise to 8.3 versus a reading of 5.08 in July.
9:00 am EST
Net Long-Term TIC Flows for June are estimated to rise to $45.7 Billion versus $35.4 Billion in May.
10:00 am EST
The NAHB Housing Market Index for August is estimated to rise to 15.0 versus a reading of 14.0 in July.
Upcoming Splits
(JOSB) 3-for-2
Other Potential Market Movers
None of note
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on more shorting, rising financial sector pessimism, increasing economic fear, greater sovereign debt angst, china concerns and technical selling. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 50% net long heading into the week.
