BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and financial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 106.20 bps +3.61%
European Financial Sector CDS Index 121.17 bps +7.41%
Western Europe Sovereign Debt CDS Index 144.66 bps -.75%
Emerging Market CDS Index 237.69 bps +5.33%
2-Year Swap Spread 18.0 unch.
TED Spread 17.0 unch.
Economic Gauges:
3-Month T-Bill Yield .12% unch.
Yield Curve 212.0 -7 bps
China Import Iron Ore Spot $141.90/Metric Tonne -1.53%
Citi US Economic Surprise Index -33.40 +5.0 points
10-Year TIPS Spread 1.65% -3 bps
Overseas Futures:
Nikkei Futures: Indicating -106 open in Japan
DAX Futures: Indicating -10 open in Germany
Portfolio:
Lower: On gains in my Tech, Ag and Medical long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 gives back some of its recent gain on light volume. On the positive side, Steel, Gold, Software and Restaurant shares are higher on the day. The S&P GSCI Ag Spot Index is rising another +.93%. On the negative side, Education, Bank, Semi and Oil Tanker shares are under meaningful pressure, falling more than 2%. Cyclical and small-cap shares are underperforming. (XLF) has been heavy throughout the day. The Ireland sovereign cds is gaining another +11.30% to 374.41 bps. As well, the Spain sovereign cds is rising +6.11% to 239.55 bps, the Portugal sovereign cds is gaining +6.75% to 324.70 bps, the UK sovereign cds is soaring +15.43% to 77.05 bps and the Hungary sovereign cds is rising +5.6% to 372.27 bps. The 10-year yield is falling too much again, dropping -10 bps to 2.60%. The euro continues to trade very poorly. The rises in key cds indices are a big negative. However, given last week's large drops, today's moves aren't yet alarming. I will monitor these indices closely before further shifting market exposure. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and buyout speculation.
Bank Default Swaps Rise Most in Month on Concern of Higher Capital Demands. The cost of insuring against losses on bonds sold by European financial companies rose by the most in a month on concern higher capital requirements and losses from sovereign debt holdings will endanger the recovery. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rose for a second day, climbing 8.25 basis points to 137.75, according to JPMorgan Chase & Co. at 3:30 p.m. in London. Investors are concerned the Basel Committee on Banking Supervision will propose higher capital requirements when it meets today, limiting banks’ ability to lend. Europe’s biggest lenders are already facing losses on more than 134 billion euros of Greek, Portuguese and Spanish bonds, according to a Bloomberg News survey. “If the minimum capital requirement is too high, profitability of banks will decline significantly,” said Alexander Plenk, a Munich-based strategist at UniCredit SpA. “That’s what everyone is waiting for today.” Swaps on Deutsche Bank rose 8 basis points to 106 and Commerzbank jumped 12.5 to 108, according to data provider CMA. Swaps on Germany rose 2 basis points to 40 after factory orders in Europe’s largest economy unexpectedly fell in July. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 9 basis points to 152, the biggest daily increase since Aug. 11, according to CMA. Italy jumped 17.5 basis points to 209.5 as the government planned a sale of three- year bonds in dollars. Contracts on Portugal climbed 29 basis points to 326, Spain increased 17.5 to 233, Ireland was 26.5 higher at 366.5 and Greece was up 24 at 892, CMA prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 11 basis points to 494. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 3.25 basis points to 109, JPMorgan prices show.
Dividends Beating Bond Yields by Most in 15 Years. More U.S. stocks are paying dividends that exceed bond yields than any time in at least 15 years as profits rise at the fastest pace in two decades. Kraft Foods Inc. and DuPont Co. are among 68 companies in the Standard & Poor’s 500 Index with payouts that top the 3.80 percent average rate in credit markets, based on data since 1995 compiled by Bloomberg and Bank of America Corp. While Johnson & Johnson sold 10-year debt at a record low interest rate of 2.95 percent last month, shares of the world’s largest health products maker pay 3.66 percent. The combination of record-low interest rates, potential profit growth of 36 percent this year and a slowing economy has forced investors into the relative value reversal. For John Carey of Pioneer Investment Management and Federated Investors Inc.’s Linda Duessel, whose firms oversee $566 billion, it means stocks are cheap after companies raised payouts by 6.8 percent in the second quarter, data compiled by Bloomberg show.
Gold Futures Approach Record High as Global Stocks Slump Amid Debt Concern. Gold futures approached a record high as a slump in equities spurred demand for the precious metal as an alternative investment. Stocks in Asia, Europe and the U.S. fell on heightened concern that the global economy will struggle. The euro dropped as much as 1.4 percent against the dollar as an industry group said Germany’s 10 largest banks may need fresh capital to meet new regulations. Gold climbed as much as 0.8 percent to $1,261.60 an ounce. The all-time high on June 21 was $1,266.50.
Buffett-Backed BYD Falls in Hong Kong After August Vehicle Sales Decline. BYD Co., the Chinese automaker backed by Warren Buffett, fell the most in a week after saying its sales in August declined. BYD dropped as much as 3.1 percent to HK$47.75 and traded at HK$48.05 as of 12:29 p.m. The carmaker’s sales in China fell 19 percent from a year earlier to 31,069 vehicles last month, the Shenzhen-based company said in an e-mailed statement today. BYD, 10 percent owned by Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc., cut its full-year vehicle sales target by 25 percent to 600,000 units on Aug. 4.
SEC Considers Rules for High-Frequency Traders After Plunge. U.S. Securities and Exchange Commission Chairman Mary Schapiro said her agency may impose new rules on high-frequency traders after lawmakers and investors questioned whether market participants who execute thousands of transactions in seconds sparked the May 6 plunge. The SEC should consider whether traders with the “best access” to markets should face obligations to buy and sell stocks to preserve liquidity, Schapiro said today in remarks prepared for a speech at the Economic Club of New York. The agency is also examining whether stock quotations should have to stand for a minimum amount of time. Such a change would stop high-frequency traders from repeatedly placing and canceling orders in milliseconds. “Some could argue that May 6 was an aberration -- another perfect storm -- and now that it has passed markets have naturally adapted leaving no need for a comprehensive review of our market structure,” Schapiro said. “I disagree.”
Potash Corp.(POT) CEO Doyle Says BHP Billiton(BHP) 'Will Not Be the Only Bidder'.Potash Corp. of Saskatchewan Inc. Chief Executive Officer Bill Doyle said he doesn’t believe that BHP Billiton Ltd. will be the only bidder for the world’s biggest fertilizer producer. “A number of third parties have already expressed interest in alternative transactions, some who we approached and others who initiated contact on their own,” Doyle, 60, said in a video clip posted today on the potash-producer’s website.
Wall Street Journal:
Vale Starts Push to Be Global Leader in Fertilizer. This week, Brazilian miner Vale SA, the world's biggest iron ore miner, sets off on a new goal: to become the world leader in the production of crop fertilizers. On Friday, Vale hopes to begin by consolidating its fertilizers empire in a restructuring of some operations that will form a new company, Vale Fertilizantes SA. The Rio de Janeiro company has earmarked $12 billion to be spent on new projects and acquisitions in fertilizers in the next three years, according to Vale fertilizers director Mario Barbosa.
Samsung Mobile Display to Boost 2011 Production. Samsung Mobile Display, which has had difficulty meeting demand for ultra-thin screens for smartphones, expects its production capacity to increase sharply when its new facility opens in July. Capacity will go up to 30 million screens per month from three million currently when the new facility opens.
U.S. Treasury Blacklists Iranian-Owned German Bank EIH for Iran Business. The U.S. Treasury added Iranian-owned, German-based European-Iranian Trade Bank AG to its key blacklist Tuesday, saying the bank has provided a financial lifeline to Iranian companies involved in weapons proliferation. The move bans the Hamburg-based bank— known as EIH Bank for its German initials—from the U.S. financial system.
ACLU Sues Homeland Security Over Search Policies. The U.S. Department of Homeland Security has been sued over its policies that allegedly authorize the search and seizure of laptops, cellphones and other electronic devices without a reasonable suspicion of wrongdoing, the American Civil Liberties Union said Tuesday. The ACLU claims the policies place no limit on how long Homeland Security can keep a traveler's devices or on the scope of private information that can be searched, copied or detained. There is no provision for judicial approval or supervision, the ACLU said.
GM's AmeriCredit Acquisition Irks Feds. Former GM Chief Ed Whitacre's decision to resign last month instead of staying as planned through the automaker's initial public offering came on the heels of Whitacre's decision to quietly acquire a subprime lender without consulting the government, according to people familiar with the situation. After the government bailed out GM's former auto finance arm, GMAC, to the tune of $17 billion, Treasury officials were flummoxed by GM's decision to return to auto lending with a July 22 deal to acquire AmeriCredit for $3.5 billion, sources close to the deal said.
Business Insider:
Is Chuck Schumer's Criticism of Yuan Price Fixing a Secret Play to Boost Hist Hedge Fund Pals? The common line from politicians, including New York's Chuck Schumer, is that China must be punished for fixing the price of the yuan, as it hurts US manufacturers. But the very plugged-in Tim Carney hears "whispers" from K Street lobbyists that there may be something more at work: Currency exchange rates are a major playground for hedge funds. George Soros, for instance, has multiplied his hedge funds' value a hundred-fold through currency speculation. One K Street lobbyist told me he's received phone calls this week from a hedge-fund client desperate to learn if and when Schumer and Baucus's fight to un-peg the yuan might go through Congress. So the question is this: Which hedge funds are betting on the yuan rising versus the dollar (or possibly even falling)? And is anyone at that fund keeping in touch with Schumer? What's interesting, too is that Schumer's partner on this fight, Montana Senator Max Baucus is the second biggest recipient of financial industry money after Schumer.
PetroChina Seeks Bids for Iraq's Halfaya Oil Project. PetroChina has started issuing tenders for a multibillion project to develop Iraq's giant untapped Halfaya oil field in southern Iraq, Iraqi oil sources said Tuesday.
SEC:
SEC Charges Colorado-Based Investment Adviser With Fraudulently Recommending Hedge Funds to Older Investors. The Securities and Exchange Commission today charged Boulder, Colo.-based investment adviser Neal R. Greenberg with fraud and breach of fiduciary duty in the marketing and recommendation of his firm's hedge funds to investors, including many elderly clients. The SEC's Division of Enforcement alleges that Greenberg falsely stated that the Agile hedge funds offered and managed by his two investment advisory firms were suitable for conservative investors who were retired or nearing retirement. However, the Agile hedge funds used leverage and concentrated in a small number of investments. The funds suffered substantial losses in September 2008 and ceased redemptions to investors. The SEC Division of Enforcement further alleges that the Agile hedge funds improperly collected approximately $2 million in management and performance fees that were not adequately disclosed to investors.
FINalternatives:
Michigan Boosts Hedge Funds, Cuts Private Equity. The Michigan State Retirement Systems is tripling its hedge fund allocation—at the expense of its private equity investments. The $45 billion public pension fund has boosted its hedge fund allocation from 2% to 6%, Pensions & Investments reports. The hedge fund increase, as well as that of real return and opportunistic funds from 1% to 4%, will be funded by a sizeable cut in its private equity allocation from 20% to 14%.
WeeklyStandard.com:
Democrats Fleeing Obamacare. Do Any Congressional Democrats Favor Repeal? The question now is whether the 34 House Democrats who voted against Obamacare are willing to pledge publicly that they support repeal – and whether their GOP opponents will make them answer that question.
55% Oppose Second Economic Stimulus Plan. A new Rasmussen Reports national telephone survey finds that 55% of U.S. voters continue to oppose a second economic stimulus package. Only 31% support a second stimulus.
Politico:
White House Still Seeks to End Tax Cuts. President Obama disagrees with his former budget director’s proposal that the Bush tax cuts for the rich be extended for two years, White House press secretary Robert Gibbs said Tuesday.
Congress Outsourcing Some Ethics Work. Congress is outsourcing key parts of its ethics investigations. The Office of Congressional Ethics, an independent ethics body, has contracted out more than $500,000 of work over the past year, a sign of just how busy the ethics watchdog has been and how expansive the ethics process has become.
The recipient of nearly $530,000 in taxpayer dollars is Navigant Consulting, a business consulting firm. Navigant, based in Chicago, was not involved in any of the most sensitive legal aspects of ethics cases, but because of an unpredictable caseload, a small staff and institutional constraints on its time, the OCE has found itself outsourcing things like document retrieval and management, forensic accounting and technology services, according to public records and sources familiar with the matter.
Conservative corners of the Internet are buzzing over a Los Angeles school named after former Vice President Al Gore that was built on toxic soil and, some say, poses a health risk to students.
Telegraph:
China's Young Officers and the 1930s Syndrome. It was slightly disturbing to hear the warnings of a distinguished China-watcher at a closed-door session of the annual Ambrosetti conference on Lake Como. (This gathering of the global policy elites at Villa D’Este is a hardship assignment for Telegraph hacks. It fell to me again this year, but somebody has to do it.) “China’s military spending is growing so fast that it has overtaken strategy,” said Professor Huang Jing from the Lee Kwan Yew School of Public Policy in Singapore. (He kindly let me quote his remarks.) “The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. They are thinking what they can do, not what they should do. This is very dangerous. “They are on a collision course with a US-dominated system”. Harvard Professor Niall Ferguson rattled me even further with a talk warning that the Chimerica marriage of the last generation is “on the rocks”.
