Tuesday, October 13, 2009
Stocks Slightly Lower into Final Hour on Healthcare Reform Concerns, Profit-Taking, Higher Energy Prices
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mostly negative and volume is below average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is falling -.61% and is high at 22.87. The ISE Sentiment Index is low at 101.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running above average most of the day, hitting 2.06 at its intraday peak, and is currently .86. The Euro Financial Sector Credit Default Swap Index is rising +1.96% today to 70.33 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 -.88% to 101.0 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is up 1 basis point to 22 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is -.34% to 36.63 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +2 basis points to 1.86%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .06%, which is unch. today. Cyclical shares are outperforming again today. Retail, Homebuilding, Telecom, Steel and Gold shares are especially strong, rising 1.0%+. Healthcare-related stocks are the only sources of meaningful weakness, falling on reform worries. Overall, today’s action should be viewed as another healthy light volume consolidation. Weekly retail sales jumped +.6% versus a -2.2% decline the prior week and up from a -4.3% decline the last week of August. This is a big positive and if this trend continues it would likely indicate further improvement in broad economic data over the coming months. Nikkei futures indicate a -6 open in Japan and DAX futures indicate an +21 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on diminishing economic fear, short-covering, lower long-term rates, takeover speculation, investment manager performance anxiety and earnings optimism.
Today's Headlines
Bloomberg:
- Cisco Systems Inc.(CSCO), the largest maker of networking equipment, agreed to buy Starent Networks Corp. in a deal valued at $2.9 billion, its second multibillion- dollar acquisition in less than two weeks. Cisco will pay $35 a share in cash and assume outstanding equity awards, according to a statement today. The per-share price is 21 percent more than Starent’s closing price yesterday. Cisco, based in San Jose, California, expects the transaction to add to earnings by fiscal 2012.
- Copper prices dropped the most in more than a week as equity markets fell and Rio Tinto Group(RTP) said demand in the U.S. and Europe has yet to recover. “For the next six to 12 months, we are somewhat cautious on the market,” Bret Clayton, the chief executive officer of Rio’s copper business, said today in London. “The U.S. has bottomed out but we’re not seeing a pickup in demand yet,” Clayton said in an interview. “Some expected a pickup in demand when restocking took place. We haven’t seen that yet and we probably don’t anticipate that until later this year.” Copper futures have almost doubled this year as imports rose to record levels in China, the world’s largest metals user. The nation probably reduced inbound shipments last month, Lambrecht said. Purchases of imported copper and related products fell 20 percent to 325,098 metric tons in August compared with a month earlier, according to a government report. “We have seen two months in a row of sharp slowdowns in import demand,” she said. “We are expecting another fall” to be reported tomorrow.
- Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co(JPM).
- The Australian dollar’s rally through 90 US cents, the best performance of the past year, may stall after steel prices in China dropped to the lowest since April, according to Royal Bank of Scotland Group Plc. Chinese steel prices dropped 21% in the past two months. “The steel market is suggesting that demand for Australia’s commodities hasn’t been strengthening in recent months,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland in Sydney.
- Goldman Sachs Group Inc.(GS) was cut to “neutral” by Meredith Whitney as the analyst who correctly predicted Citigroup Inc.’s dividend cut two years ago dropped her only “buy” recommendation. Whitney cited valuation for the downgrade of Goldman Sachs, the biggest U.S. securities firm before converting to a bank last year, and said her outlook for the company remains bullish. Goldman Sachs has surged 31 percent since Whitney raised her rating on the New York-based bank to “buy” on July 13.
- The U.K. inflation rate dropped in September by more than economists forecast to the lowest in five years as the worst recession in a generation purged cost pressures throughout the economy. Consumer prices rose 1.1 percent from a year earlier, compared with 1.6 percent the previous month, the Office for National Statistics said today in London.
- Dozens of swine flu patients were saved from respiratory failure when doctors in Australia and New Zealand turned to machines that pump blood through an artificial lung, resulting in a 17-fold increase in the uncommon procedure. The finding, published in the Journal of the American Medical Association yesterday, is based on the first population- wide study of lung-bypass equipment made by companies such as Getinge AB and Medtronic Inc.(MDT) to treat H1N1 patients. The study suggests the life-saving technique might be used on about 800 cases in the U.S. this winter and 1,300 in the European Union.
- Russian Foreign Minister Sergei Lavrov said threats to impose new sanctions against Iran are “counterproductive” and the international community should push for a diplomatic solution on the country’s nuclear program. “Our position is that at this stage all efforts should be made to support the negotiating process,” Lavrov said in Moscow after talks with U.S. Secretary of State Hillary Clinton. “Sanctions and the threat of pressure in the current situation are counterproductive in our view.”
- Businesses and governments need to invest at least $2.4 trillion by 2050 to capture carbon-dioxide emissions from power plants and factories and pump them underground, the International Energy Agency said. That much is required to develop 3,400 projects globally that trap and store the greenhouse gas and help cut emissions from fossil fuels by half from 2005 levels, according to the IEA’s “road map” for carbon capture that was published today.
- The U.S. needs a more aggressive approach to prevent people from driving under the influence of drugs, said R. Gil Kerlikowske, the Obama administration’s director of the Office of National Drug Control Policy. Kerlikowske said today he is concerned about a National Highway Traffic Safety Administration survey released in July showing that 16 percent of nighttime weekend drivers tested positive for potentially impairing drugs, including marijuana, cocaine and over-the-counter and prescription medications. “A lot more has to be done,” Kerlikowske said in an interview in the Washington bureau of Bloomberg News. “We have to have a much more aggressive, forward-leaning stance that doing drugs and driving is a significant problem and don’t do it.”
- Dell Inc.(DELL) founder Michael Dell, who announced a $3.9 billion takeover of Perot Systems Corp. last month, said his company is “rapidly developing” merger expertise and will seek more deals as part of a turnaround plan. “You will see us be reasonably active,” Dell, the company’s chief executive officer, said in an interview yesterday. He said Dell will look at acquisitions that bolster sales to corporate customers and will consider more purchases in the health-care industry.
- Federal Reserve Vice Chairman Donald Kohn said inflation and economic growth will probably stay below the central bank’s objectives for “quite some time,” warranting very low interest rates for an “extended period.” The risk of slowing inflation will exceed the chance of accelerating prices “for a while,” and there will be a “gradual” recovery that helps curtail joblessness, Kohn said today in a speech to economists in St. Louis.
Wall Street Journal:
- An Afghan judge resigned from the country’s electoral watchdog commission, blaming what he called “foreign interference” for holding up the declaration of the final result, citing Judge Maulavi Mustafa Barakzai.
- Members of the Norwegian committee that gave Barack Obama the Nobel Peace Prize are strongly defending their choice against a storm of criticism that the award was premature and a potential liability for the U.S. president. Asked to comment on the uproar following Friday's announcement, four members of the five-seat panel told The Associated Press that they had expected the decision to generate both surprise and criticism. Three of them rejected the notion that Mr. Obama hadn't accomplished anything to deserve the award, while the fourth declined to answer that question. A fifth member didn't answer calls seeking comment.
CNBC:
Fox News:
- In an unannounced move, President Obama is dispatching up to 15,000 additional U.S. troops to Afghanistan beyond the 21,000 he announced in March. The additional troops are primarily support forces -- such as engineers, medical personnel, intelligence experts and military police. A Washington Post report published Tuesday said Obama dispatched 13,000 additional troops, but an unnamed defense official familiar with the process told Fox News that the number is closer to 15,000. "Obama authorized the whole thing. The only thing you saw announced in a press release was the 21,000," a defense official, speaking anonymously, told the Washington Post.
NYPost:
- A Connecticut college has warned students interning for late-night, skirt-chasing TV funnyman David Letterman to stay at arm's length from the host. A rep from Quinnipiac University told the celebrity Web site TMZ that "due to recent circumstances we will have a discussion with those in charge of placing our interns at the David Letterman show in the future." In the statement, the school added, "We will diligently oversee this internship program to ensure that our interns are out of harm's way."
- Bernie "The Bruiser" Madoff got into a prison-yard tussle with a fellow inmate over -- of all things -- the stock market, eyewitnesses told The Post. And, by inmates' accounts, the 71-year-old Ponzi schemer came out the winner. Madoff, serving 150 years at the Butner, NC, federal prison, was heard last week getting into a heated debate over the state of the market with another senior-citizen jailbird. The shouting match got so heated that the inmate pushed Madoff, who shoved back harder with both hands, causing his attacker to stumble. As the attacker tried to stand up straight, Madoff hovered over him red-faced and glaring, eyewitnesses said. The stunned attacker went chicken and took off -- allowing Madoff to collect some "cred" among his fellow prisoners.
Gigaom:
- A growing number of early-stage deals and general optimism in the technology industry helped push venture capital investments up 14 percent in the third quarter of this year, to $6.1 billion from $5.3 billion in the prior quarter, according to a report released today from ChubbyBrain, a information services company that tracks VC activity. This should be viewed as good news for entrepreneurs who are currently looking to raise capital for their startups in coming months.
HomeTextilesToday:
- After a month of almost constant week-over-week comp declines, same-store sales during the first week of October were up 0.6%, the Johnson Redbook reported today. Discounter comps rose 2.1%, offset by a -1.9% decline at department stores. However, on a month-over-month basis, comps rose 1.9% compared to September. Demand for seasonal apparel picked up as retailers began heading into the Columbus Day weekend, according to Redbook analyst Catlin Levis. “The main merchandise itmes in October include mid-fall seasonal apparel, Halloween, winter sports and early holiday,” she said. Halloween sales “were generally on track,” said added, with many stores putting out themed merchandise earlier than usual. Ditto for the holidays.
Greenwire:
- The US should be able to adopt limits on greenhouse-gas emissions at the UN talks in December even if domestic climate and energy legislation is not finished, citing Senator Barbara Boxer.
The Big Picture:
- Former Morgan Stanley Analyst Andy Xie explains why China is a potential bubble. Asset bubbles come and go. Each begins with a story: Japan as No. 1, the East Asian miracle, dotcom mania, how financial innovations eliminate risk – just to mention the latest four. Each begins with a plausibly bullish story, which is then magnified by the financial markets, creating the inevitable bubble.
Politico:
- Sen. Olympia Snowe (R-Maine) said Tuesday that she will vote for the Senate Finance Committee health care legislation, ending weeks of speculation about whether any Republicans would sign onto the Democratic reform bill. “Is this bill all that I want? Far from it. Is it all that it could be? No,” Snowe said. “But when history calls, history calls. And I happen to think the consequences of inaction dictate the urgency of Congress to take every opportunity to demonstrate its capacity to solve the monumental issues of our time.” She said she supports the bill with reservations, and shares the Republican concerns about how Democrats will shape the bill after it leaves the committee. In a subtle warning, Snowe said: “My vote today is my vote today, it doesn’t forecast what my vote will be tomorrow.”
- Some of the progressives who helped put Nancy Pelosi and Harry Reid in power are demanding that they come down hard on House Ways and Means Committee Chairman Charles Rangel and any Senate committee chairmen who stray from the flock on health care reform. Don’t hold your breath. While three Democratic insiders say leaders have privately discussed the possibility of ousting Rangel or asking him to step aside, there has been no move to approach the New York Democrat — and aides to Pelosi have made it clear that she won’t do anything about him until the House Ethics Committee finishes its probe. That doesn’t sit well with Markos Moulitsas and Arianna Huffington, two stars of the liberal blogosphere who’ve joined House Republicans in calling for Rangel’s ouster.
- Speaker Nancy Pelosi has a tax problem: The so-called millionaire’s tax that her fellow House Democrats want to use to pay for the bulk of their health care legislation won’t keep pace with rising costs. For the California congresswoman, who’s been echoing President Barack Obama’s mantra that health care reform shouldn’t add a dime to the federal deficit, the prospect could result in a sea of red ink. And it’s giving moderates plenty to grumble about. The months-long fight over an optional government-run insurance plan has generated much public tension between liberal and conservative Democrats. Now the competing wings are locked in a behind-the-scenes tussle in the House over how to pay for the proposal.
Washington Times:
USAToday:
- One of the things expected to help multinational U.S. companies as they report quarterly earnings isn't exactly coming through as planned. In theory, when the U.S. dollar is weak, as it is now, U.S. companies benefit because U.S. goods should appear cheaper to overseas consumers and U.S. companies should get a boost converting foreign sales back into dollars. But so far, very early in earnings season, U.S.-based companies that do a lot of business overseas, including Alcoa (AA), Yum Brands (YUM), Levi Strauss and Biomet, have reported taking hits on currency fluctuations even as the greenback plummets. Investors counting on a weak-dollar boost could be disappointed, says Marc Chandler, a currency expert at Brown Bros. Harriman. "Just because there's a weak dollar and you buy (stock in U.S.) multinationals, it might not work out," he says. "There's no shortcut to investing."
Reuters:
- Australian attitudes to China are cooling, with 50 percent believing there is too much Chinese investment in Australia and almost half the population in favor of limiting China's influence, a poll suggested on Tuesday. Relations between China and Australia have been strained in recent months by political opposition to China's efforts to buy key stakes in Australian commodities and resources firms and the arrest of an Australian mining executive in China.
- U.S. agribusiness and trading company Cargill Inc reported a 65 percent drop in quarterly profit Tuesday, hurt by plunging earnings at fertilizer maker Mosaic (MOS) Co, in which Cargill is the majority shareholder.
- U.S. freight company J.B. Hunt Transport Services (JBHT) is close to signing a long-term intermodal agreement with an eastern railroad, most likely Norfolk Southern Corp (NSC), according to analysts.
Correio Braziliense:
- Brazil’s government may cut payroll taxes in a bid to encourage job creation, citing a government official.
DigiTimes:
- Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) are expected to implement aggressive capex plans for 2010, when the semiconductor market is likely to stage a turnaround, according to sources at the companies. TSMC has tentatively set a capex target of US$3 billion for 2010, a 30% increase compared to US$2.3 billion allocated for 2009, while UMC internally has estimated its 2010 capex will double to US$1 billion from the 2009 level of US$500 million, the sources said. Both TSMC and UMC have allocated large portions of their 2009 budgets for 45/40nm foundry capacity, industry sources commented, adding that ramping production on the processes through 12-inch facility expansion will remain a focus in 2010. SEMI has forecast chip fab spending will rise 64% to US$24 billion in 2010, following a 50.7% drop in 2009. TSMC and UMC are scheduled to hold their investors conferences on October 29 and October 28, respectively, to announce third-quarter results and disclose guidance for the fourth quarter.
Edaily:
- Samsung Electronics Co. plans to invest “a lot” in semiconductors next year, citing Kwon Oh Hyun, head of the company’s chip division.
Caijing:
- Bank of China Ltd. Vice President Zhu Min may be nominated by China to become the International Monetary Fund’s vice president.
Bear Radar
Style Underperformer:
Small-Cap Value (-.95%)
Sector Underperformers:
HMOs (-2.87%), Insurance (-2.06%) and I-Banks (-1.38%)
Stocks Falling on Unusual Volume:
DRIV, GROW, IRE, TLVT, ACOR, PWRD, SYNA, STEC, ENER, AIZ and WHG
Stocks With Unusual Put Option Activity:
1) ACOR 2) PWRD 3) BDK 4) NTES 5) RTN
Bull Radar
Style Outperformer:
Large-Cap Growth (-.35%)
Sector Outperformers:
Homebuilders (+3.06%), Retail (+.63%) and Steel (+.31%)
Stocks Rising on Unusual Volume:
PKX, EGO, AKS, NEM, SHLD, PTR, WMT, TM, F, TCB, ZION, VMED, TLK, DLLR, VNDA, STAR, ININ, NTES, SKBI, HIBB, CPSI, CERN, DEER, NUVA, CHNG, RINO, AKAM, ARST, AIXG, SUPX, ASML, DECK, ASEI, ADTN, ATE, KRO, ITT, RSC, TBH, VQ and RMD
Stocks With Unusual Call Option Activity:
1) ABT 2) INFY 3) TIBX 4) LLTC 5) CTXS
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Monday, October 12, 2009
Tuesday Watch
Late-Night Headlines
Bloomberg:
- People who excel at making snap decisions and learn quickly from their mistakes, skills tied to successful stock traders, may share a genetic secret, according to a study by German neuroscientists.
Wall Street Journal:
- The
- The Obama administration has shelved a plan to raise more than $200 billion in new taxes on multinational companies following a blitz of complaints from businesses. A contingent of Silicon Valley chief executives, for example, traveled to
- The Senate Finance Committee holds its big health-care vote today, but the bigger story is that the health-care industry may finally be coming to its senses. After months of serving as Rose Garden props, insurers, doctors and hospitals are discovering they've been taken for a ride on ObamaCare. Too bad it may be too late to stop the train.
- Federal securities regulators are examining whether an arrangement that lets high-speed traders rapidly buy and sell large chunks of stock anonymously could go awry and threaten markets. Called sponsored or "naked" access, the setup allows high-speed firms and other outfits to trade directly on exchanges using powerful computers without the exchanges or regulators knowing who is making the trades. "We understand that some firms are offering so-called naked access without effective controls over financial regulatory risk," said David Shillman, associate director of the Securities and Exchange Commission's division of trading and markets, which is stepping up its scrutiny of the issue. The practice is one of several involving high-frequency trading that is troubling regulators amid a broader look at making securities markets more transparent and stable.
MarketWatch.com:
- Bank of America Corp.(BAC) has agreed to hand over documents detailing legal advice it received during its purchase of Merrill Lynch & Co., after months spent resisting efforts by regulators and others to pry such information loose, according to a report published Monday.
CNBC.com:
- Goldman(GS) Tries to Distract Critics From Its Huge Bonuses.
NY Times:
- Many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth, even as the country tentatively rises from its recessionary depths. Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board.
CNNMoney.com:
- Top 10 Highest Paying Jobs in America.
Politico:
- Hillary Clinton rules out White House bid.
zerohedge:
- Why Did
Reuters:
- CIT Group Inc is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter said. The lender to small and medium-sized businesses said earlier this month it was looking for investors to approve a large debt exchange that would reduce its borrowings, or to approve a prepackaged bankruptcy. CIT is now more likely to try a prepackaged bankruptcy, two people familiar with the matter said.
- General Electric (GE) could start to exit a new NBC Universal joint venture with Comcast Corp (CMCSA) as soon as three-and-a-half years after the ink is dried, two people familiar with the talks said on Monday.
Financial Times:
- JPMorgan Chase(JPM) may post annual earnings of as much as $24 billion by 2012 because of less competition and the integration of Bear Stearns Cos. and Washington Mutual Inc., citing “internal back-of-the-envelope calculations.” JPMorgan had profits of $15.4 billion in 2007.
Yonhap News:
-
Late Buy/Sell Recommendations
Deutsche Bank:
- Rated (ONNN) Buy, target $10.
UBS:
- Rated (RL) Buy, target $86.
Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 futures -.18%.
NASDAQ 100 futures -.16%.
Morning Preview
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Rasmussen Reports Polling
Earnings of Note
Company/EPS Estimate
- (JNJ)/1.13
- (ALTR)/.19
- (INTC)/.28
- (LLTC)/.24
- (CSX)/.71
- (DPZ)/.15
Economic Releases
- None of note
Upcoming Splits
- None of note
Other Potential Market Movers
- The weekly retail sales reports, IBD/TIPP Economic Optimism Index, BoJ rate decision, White House’s Romer speaking, Fed’s Dudley speaking, Fed’s Kohn speaking, (JCI) Outlook, (CBRL) business update, ABC Consumer Confidence and OPEC’s monthly report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and commodity shares in the region. I expect
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