BOTTOM LINE: I expect US stocks to finish the week modestly higher on mostly positive earnings reports, technical buying, short-covering, investment manager performance anxiety, seasonal strength, buyout speculation, less economic fear and diminishing financial sector pessimism.My trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.
Indices S&P 500 1,069.30 +3.20%
DJIA 10,023.42 +3.20%
NASDAQ 2,112.44 +3.29%
Russell 2000 580.35 +3.12%
Wilshire 5000 10,863.26 +3.25%
Russell 1000 Growth 474.96 +3.54%
Russell 1000 Value 545.02 +3.0%
Morgan Stanley Consumer 649.90 +2.50%
Morgan Stanley Cyclical 749.61 +5.79%
Morgan Stanley Technology 534.01 +3.39%
Transports 3,852.47 +6.62%
Utilities 369.93 +1.90%
MSCI Emerging Markets 39.48 +3.39%
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Retail longs and Defense 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 lower, sector performance is mixed and volume is slightly below average. Investor anxiety is very high. Today’s overall market action is neutral. The VIX is falling -4.01% and is high at 24.41. The ISE Sentiment Index is around average at 149.0 and the total put/call is high at 1.12. Finally, the NYSE Arms has been running above average most of the day, hitting 1.20 at its intraday peak, and is currently 1.19. The Euro Financial Sector Credit Default Swap Index is falling -.84% today to 66.50 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 -.46% to 102.96 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is down -1 basis point to 23 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down -2.35% to 33.81 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 +1 basis point to 2.16%, which is down 49 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up +1 basis point today.Growth stocks are outperforming value stocks today.Airline, gold, road & rail, gaming, restaurant, hmo, biotech and retail shares are especially strong, rising 1%+.Overall, today’s action appears to be a healthy low volume consolidation of recent gains.This action is even more positive, considering the jump in the headline unemployment rate.Investors are likely anticipating a topping of unemployment around current levels after the recent massive productivity surge and uptick in temp hiring.Investor angst has risen throughout the day, despite the major averages moves off session lows, which is also a positive.I still expect US stocks to build on this week’s gains next week, which should begin to result in another uptick in investment manager performance anxiety into a seasonally strong period for stocks through year-end.Nikkei futures indicate an +6 open in Japan and DAX futures indicate an +6 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, short-covering, earnings optimism and lower long-term rates.
- The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October and employers cut more jobs than forecast. Payrolls fell by 190,000 workers last month, compared with a 175,000 drop anticipated by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The jobless rate gained from 9.8 percent in September and exceeded 10 percent for the first time since 1983. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 17.5 percent from 17 percent in September. Temporary workers rose by 34,000, the third consecutive gain. Neal Soss, chief economist at Credit Suisse in New York, is among those saying the gain is a harbinger of increases in overall employment. Payrolls at temporary-help agencies often turn up before total employment because companies are not certain increases in demand will be sustainable enough to warrant the expense of taking on permanent staff. President Barack Obama in February signed into law a $787 billion stimulus package aimed at reviving growth and stemming job losses.
- Futures traders are pushing back bets for when the Federal Reserve will begin to increase interest rates from record lows after the U.S. unemployment rate surged to a 26-year high of 10.2 percent. Fed-funds futures contracts, which traded on the Chicago Board of Trade, show traders expect a 52.6 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by June from its current range of zero to 0.25 percent. That’s down from 57.1 percent odds yesterday. Implied yields on Eurodollar futures, which are based on expectations for the three-month dollar London interbank offered rate and also used to bet on the direction of central bank rates, slid. “Futures traders are pushing back expectations for the Fed’s tightening,” said Michael Marzano, senior vice president of interest-rate futures trading at Prudential-Bache Commodities in Chicago.
- American International Group Inc.(AIG), the insurer bailed out by the U.S., posted its second straight profit as investment losses narrowed and catastrophe costs declined. “Even with the profit, AIG’s still a sick company,” said Robert Haines, an analyst at CreditSights Inc. in New York. “The trends of the underlying business units are ultimately more important to the company than a positive quarterly figure.” Chief Executive Officer Robert Benmosche, who started in August, is seeking to halt the departure of customers and employees so he can rebuild units he needs to sell to repay loans included in AIG’s $182.3 billion bailout.
- Shanghai copper stockpiles climbed for a second week to the highest in more than five years, the Shanghai Futures Exchange said in a report on its Web site. Inventories of the metal expanded 1,440 metric tons, or 1.4 percent, to 104,275 tons this week, based on a survey of five warehouses monitored by the exchange. This is the highest level since April 2004. Stockpiles of aluminum increased for a fourth week, by 10,983 tons to 272,618 tons, the highest since at least 2003, based on a survey of 11 warehouses in Shanghai, Guangdong, Wuxi and Hangzhou, the exchange said. Zinc stockpiles expanded for a second week, by 8,311 tons to 153,847 tons, based on a survey of seven warehouses in Shanghai, Guangdong and Hangzhou, according to the report today. This is the highest level since the exchange started trading zinc futures in April 2007.
- Fannie Mae(FNM), the mortgage buyer seized by regulators, plans to tap emergency U.S. capital for a fourth time this year, bringing its draws of taxpayer money to $60 billion as the company sees no immediate end to its losses. Fannie Mae will seek $15 billion in Treasury Department financing after posting an $18.9 billion third-quarter net loss, according to a Securities and Exchange Commission filing late yesterday. The Washington-based company, which posted $101.6 billion in losses over the previous eight quarters, has already tapped $44.9 billion from the $200 billion emergency lifeline. “They’re going to need that $200 billion in capital, if not more, when this thing’s all said and done,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.
- A looming federal rule to cap the interest rates paid by weak banks could accelerate their demise and make life even harder for depositors. Banks deemed to be less than "well capitalized" by the Federal Deposit Insurance Corp. won't be allowed, starting Jan. 1, to pay more than 0.75 percentage point above the U.S. average. Just 4% of the nation's 8,185 federally insured banks weren't well-capitalized as of June 30. But weaker banks "drive up costs for the rest of the industry" by offering unusually high rates to lure deposits, FDIC Chairman Sheila Bair said when the rule was announced in May. Reining in such banks will force them to compete "with one hand tied behind their back," said Lawrence Kaplan, a lawyer with Paul, Hastings, Janofsky & Walker LLP. "This will cause deposit outflows" that could accelerate the rate of bank failures. There have been 115 so far this year. The curbs are "another nail in the coffin" of banks battered more by the real-estate meltdown than bad management, said Greg Murphy, chief executive of Royal Palm Bank of Florida, a unit of Mercantile Bancorp Inc., Quincy, Ill.
- For months now, consumers have been hunkering down in an economic storm, buying only what they need to survive, like groceries, diapers, medicine — and shoes. Shoes? The American public, it would seem, cannot carry on without new shoes. Boots, booties, sneakers, pumps — for the last few months they have all been selling well as the broader economy struggles toward recovery. Shoe sales have been strong for three months now. They increased 7.9 percent in October compared with the period a year ago, according to SpendingPulse, an information service by MasterCard Advisors that estimates sales for all forms of payment, including cash, checks and credit cards. In September, sales climbed 7.8 percent year-over-year. In August, shoe sales increased 0.5 percent. Sales of shoes were $1.5 billion in October, the highest they have been in any October since at least 2006.
- Citigroup(C) is preparing to relaunch its hedge fund business operations, after months of debate on the unit’s future, The Financial Times reported. The move comes after two years of performance problems and investor unrest at the unit, Citi Alternative Investments. Now, it seems, the only problem facing Citigroup executives is what to name the unit, which has $14 billion of assets under management.
Orlando Sentinel:
- Two people are dead and six are wounded in a mass shooting at an office building in downtown Orlando. Bodies were found on the 12th and 8th floor of Legions Place, a 16-floor building north of Colonial Drive. Only the 12th floor has been cleared. The shooter has not been found, said Deputy Chief Mike Droege of the Orlando Fire Department. "The building is not secure now," he said. "It's still unfolding."
- Obamacare could have the unintended consequence of raising health insurance premiums and causing a decline in the number of people with insurance. Here's why: A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition. This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. The higher premium level would cause others who are currently insured to drop coverage, pushing premiums even higher. The result would be a spiral of rising premiums and shrinking numbers of insured. In an attempt to prevent this, the draft legislation provides penalties for individuals who choose not to buy insurance and for employers that do not offer health insurance. But the levels of these fines are generally too low to cause a rational individual to insure.
- There are many unknowns about Nidal Malik Hasan, the man authorities say is responsible for the worst mass killing on a U.S. military base. Most of all, his motive. But details of his life and mindset, emerging from official sources and personal acquaintances from officials and are troubling. At least six months ago, Hasan came to the attention of law enforcement officials because of Internet postings about suicide bombings and other threats, including posts that equated suicide bombers to soldiers who throw themselves on a grenade to save the lives of their comrades. Retired Army Col. Terry Lee, who said he worked with Hasan, told Fox News that Hasan had hoped President Barack Obama would pull troops out of Afghanistan and Iraq. Lee said Hasan got into frequent arguments with others in the military who supported the wars, and had tried hard to prevent his pending deployment. Hasan attended prayers regularly when he lived outside Washington, often in his Army uniform, said Faizul Khan, a former imam at a mosque Hasan attended in Silver Spring, Md. He said Hasan was a lifelong Muslim. On a form filled out by those seeking spouses through a program at the mosque, Hasan listed his birthplace as Arlington, Va., but his nationality as Palestinian, Khan said. "I don't know why he listed Palestinian," Khan said, "He was not born in Palestine."
- China on Friday accused the US of protectionist and biased trade policies less than a week before president Barack Obama’s first visit to Beijing. In a stinging rebuke to Washington, China’s commerce ministry promised to take measures to protect its domestic industry after the US slapped anti-dumping duties on $2.6bn of Chinese steel pipe imports. The duties are part of a growing roster of trade conflicts between the two countries, despite a high-level meeting last week in China aimed at reducing tensions. “China resolutely opposes such protectionist practices and will take steps to protect the interests of our domestic industries,” Yao Jian, ministry spokesman, said on its website. “The US should give objective consideration to the fact that the fundamental problem of the US industries in question is the fall of demand brought about by the financial crisis.” The decision by the US Commerce Department, which imposed tariffs of up to 99 per cent on some Chinese steel pipes, follows a move earlier in the week by the US, European Union and Mexico to file a formal complaint at the World Trade Organisation against Beijing’s restrictions on exports of specialised raw materials. Last month the Obama administration levied 35 per cent tariffs on tyres made in China. In response, the Chinese have opened probes into US exports of poultry on grounds of safety and into cars and car parts because of the state aid those industries have received.
- Namibia’s Mines Minister Joseph Iita said a potential oil-bearing substrate has been found in the Maltahohe district of the country’s eastern Hard region.A seismic survey identified a source rock believed to contain about 200 million barrels of oil, with INA Industrija Nafte DD, a Croatian oil and gas explorer, drilling for the commodity.
Il Sole 24 Ore:
- UK Chancellor of the Exchequer Alistair Darling said that $100 billion has been decided on as the amount needed to help fight global warming.“The figure $100 billion has been decided,” Darling said.“We now have to decide how much has to be spent and who has to pay.” Negotiations on a global warming treaty begin next month in Copenhagen.
