Thursday, December 03, 2009
Stocks Lower into Final Hour on Financial Sector Pessimism, Profit-Taking, More Shorting
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, 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 rising +2.56% and is high at 21.65. The ISE Sentiment Index is below average at 114.0 and the total put/call is slightly below average at .78. Finally, the NYSE Arms has been running above average most of the day, hitting 1.41 at its intraday peak, and is currently 1.21. The Euro Financial Sector Credit Default Swap Index is falling -1.94% to 71.99 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 -1.61% 100.08 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is unch. at 22 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +6.42% to 36.25 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is +2 basis points to 2.20%, which is down -45 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today. Given today’s news, the major averages are holding up relatively well so far. Tech stocks are outperforming today. Airline, Hospital, Telecom, Semi and Utility shares are all substantially outperforming, rising .5%+. CDS indices are falling again, which is a big positive. On the negative side, (XLF) has traded poorly since the open. Besides financials, healthcare and energy-related shares are particularly weak. I will wait and see the market’s internal reaction to tomorrow’s likely better economic data before shifting market exposure. Nikkei futures indicate a -12 open in Japan and DAX futures indicate an +10 open in Germany on tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, financial sector pessimism and profit-taking.
Today's Headlines
Bloomberg:
- Mortgage rates for fixed 30-year loans in the U.S. dropped to a record low amid signs that the housing market is beginning to emerge from the worst slump since the 1930s. The rate fell to 4.71 percent for the week ended today, the lowest since mortgage buyer Freddie Mac began compiling the data in 1971. The average 15-year rate was 4.27 percent, the McLean, Virginia-based company said today in a statement.
- Treasury Secretary Timothy Geithner should explain what taxpayers gained by accepting units from American International Group Inc. in exchange for reducing the insurer’s debt by $25 billion, Senator Chuck Grassley said. “Exchanging debt for equity still leaves taxpayer dollars at substantial risk,” the Iowa Republican said in a letter to Geithner released yesterday. Republican lawmakers are stepping up a campaign to put a spotlight on Geithner’s role in AIG’s bailout. The rescue, which began last year when he was president of the Federal Reserve Bank of New York, swelled to $182.3 billion. Before the Fed stepped in late last year, AIG tried to persuade banks to accept so-called haircuts of as much as 40 cents on the dollar, according to people familiar with the matter. The Fed’s decision to pay the banks in full may have cost taxpayers $13 billion, or 40 percent of the $32.5 billion AIG paid to retire the swaps, the people said. “Thirteen billion in wasted taxpayer dollars at a time of economic crisis cries out for explanation, as you and the president seek to regain the trust of the American people on the economy,” Blunt said in a letter to Geithner.
- Credit-default swaps on Bank of America dropped 18 basis points to 110 basis points as of 8:51 am in NY, according to broker Phoenix Partners Group.
- Federal Deposit Insurance Corp. Chairman Sheila Bair said she may give banks including Citigroup Inc.(C) and JPMorgan Chase & Co.(JPM) a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets. “Giving some breathing room in terms of when they can transition in is acceptable to us,” Bair said in an interview at Bloomberg News’s Washington bureau today.
- Senate Democrats threatened to bypass Republican amendments to hasten debate over U.S. health-care legislation as delays jeopardized the goal of passage this year. Democratic leaders voiced frustration as the deliberations stretched into a third day without a vote on any amendment. Blaming Republicans for stalling, Democrats may act to remove the opposition party’s amendments from floor consideration by tabling them, said Senator Dick Durbin of Illinois. “We’re not going to sit here and watch this bill go down,” Durbin, the Senate’s No. 2 Democrat, told reporters yesterday. He warned that work may continue through the Christmas holidays if necessary. Republican leaders vowed to remain in Washington as long as needed to fight legislation that they say would cost too much and damage the health-care system. “Republicans will stay until Valentine’s Day,” said Lamar Alexander of Tennessee, chairman of the Senate Republican Conference. “We know of no more important issue in this country than defeating this legislation.”
- Senate Democratic leaders, battling Republicans who want to block Medicare spending cuts, face an even bigger headache: overcoming concern among members of their own party about the program’s future funding. President Barack Obama wants to cut spending on the federal plan for the elderly to fund his health-care overhaul. That includes more than $100 billion from Medicare Advantage, through which the government hires private insurers such as Humana Inc. to deliver enhanced Medicare benefits to 11 million seniors, like reduced co-payments and even gym memberships. Should Congress scale back the program, “We’re not going to be able to say ‘if you like what you have, you can keep it,’” said Senator Bob Casey, a Pennsylvania Democrat. “And that basic commitment that a lot of us around here have made will be called into question.” Obama is seeking hundreds of billions of dollars in Medicare savings to help finance the overhaul of the health-care system, estimated in the Senate to cost $848 billion. The resistance he’s getting underscores the difficulty of paying for the plan without increasing the budget deficit, a condition Obama set. It also threatens to stoke opposition from the elderly, many of whom are already skeptical about Obama’s plans, and to reduce earnings for some of the 200 private insurers participating in Medicare Advantage.
- The number of Americans filing first- time claims for unemployment benefits unexpectedly fell last week to the lowest level in more than a year, a sign companies are holding on to workers as the economic recovery unfolds. Initial jobless claims declined by 5,000 to 457,000 in the week ended Nov. 28, the fewest since September 2008, a Labor Department report showed today in Washington. Today’s report showed the four-week moving average of initial claims, a less volatile measure, fell to 481,250 last week from 495,500 the prior week. The unemployment rate among people eligible for jobless benefits held at 4.1 percent in the week ended Nov. 21.
- Secretary of State Hillary Clinton and Defense Secretary Robert Gates highlighted links between al- Qaeda and militants in Afghanistan and beyond to drive home the need for a surge of U.S. troops amid congressional skepticism. In a second day of testimony on Capitol Hill, Gates, Clinton and Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, defended President Barack Obama’s plan to increase U.S. forces fighting the war in Afghanistan by 30,000 to 98,000.
- U.S. prosecutors said they may add new criminal charges to the case of Najibullah Zazi, an Afghan suspected of planning the explosion of a bomb in New York around the anniversary of the 2001 terror attacks. Zazi, 24, a former airport shuttle-van driver, was engaged in what federal authorities called “a chilling and disturbing sequence of events” which “suggests the defendant was intent on making a bomb and being in New York on 9/11 for purposes of perhaps using such item.”
- Venezuela’s bolivar sank to a two- month low and bonds tumbled as President Hugo Chavez’s threat to seize more banks prompted investors to pull their money from the financial system and move it overseas. The bolivar plunged 9 percent to 6.30 per dollar in the unregulated parallel market, traders said.
- Bank of America Corp.’s(BAC) plan to repay $45 billion of government bailout funds may boost investor confidence in the lender’s health and its chances of finding a new chief executive officer. Shares of the biggest U.S. bank advanced a day after the company said it will buy back stakes sold to the Troubled Asset Relief Program. The exit is earlier than expected, Wells Fargo Advisors analyst Matthew Burnell wrote today, and Paul Miller of FBR Capital Markets -- who said in February the bank might need to be nationalized -- raised his rating to “outperform.”
- Internet-based poker games can be subject to manipulation, a top Federal Bureau of Investigation official said. “There are several ways to cheat at online poker, none of which are legal,” FBI Assistant Director Shawn Henry wrote in a letter to Representative Spencer Bachus of Alabama.
Wall Street Journal:
- The British university at the heart of a scandal over climate-change research announced a wide-ranging probe into allegations that its scientists manipulated data about global warming. The independent review is part of efforts by the University of East Anglia to dampen the furor over thousands of hacked private emails involving its researchers, which suggested efforts to squelch the views of climate change skeptics. The scandal blew up just days before world leaders meet in Copenhagen for a United Nations-sponsored climate summit that could boost international efforts to curb greenhouse-gas emissions and slow global warming.
- New York State of Revolt. Enough with the taxes, say voters in Westchester and Long Island.
- With Comcast closing its deal to buy a controlling stake of NBC Universal, Jeff Zucker, who will remain CEO of the entertainment and news company, sent a memo to employees expressing his gratitude to General Electric and saying he expects the deal to meet regulatory approval within nine to 12 months. The memo:
- Bank of America(BAC) TARP Payback: Five Analyst Takeaways.
CNBC:
NY Times:
- BlueCrest Spends Big on Fast-Trading ‘Arms Race’ secretive hedge fund firm BlueCrest Capital Management is running some of the “black boxes” it uses for automated trading in screen-filled trading offices once used by Enron, overlooking Buckingham Palace gardens in London. It also has another data centre south of the River Thames. With roughly $15 billion in assets under management, with around 60 percent of that in its black box systematic trading strategies, BlueCrest relies on powerful computers that run programs designed by a small army of PhDs from among its 300-plus U.K.-based employees. BlueCrest, Europe’s third-biggest hedge fund firm and one of the biggest names in the area of high-frequency trading, has been one of the winners during the credit crisis with strong fund performance, helped by trading technology it built itself and infrastructure it compares to that of an investment bank.
- Debt Crisis Test Dubai’s Ruler.
The Business Insider:
- The Marcellus Shale is an untapped resource for natural gas sitting under New York, Pennsylvania and West Virginia. In Broome County, N.Y. alone, consultants say, shale gas development could create $15 billion in economic activity. Finally, energy companies are ready to drill baby, drill.
TheStreet.com:
- Intel(INTC) will have no choice but to buy ARM Holdings(ARMH). The first reason is that ARM controls the market for smartphone processors, and Intel won't be able to knock it off that perch.
Lloyd’s List:
- A RECORD number of tankers are storing crude and oil products, driving up charter rates to their highest since the first quarter of this year for some sectors.
The number of tankers deployed for temporary storage jumped by 20 in a month to 149 by the end of November.
- THE US government is retreating on the implementation of a law passed two years ago that requires 100% scanning of incoming containers at all foreign ports from July 2012, by pushing the deadline back two years. The US Department of Homeland Security is planning to grant a blanket extension until 2014 to all the world’s ports.
Rassmussen:
- Most Americans (52%) believe that there continues to be significant disagreement within the scientific community over global warming. While many advocates of aggressive policy responses to global warming say a consensus exists, the latest Rasmussen Reports national telephone survey finds that just 25% of adults think most scientists agree on the topic. Twenty-three percent (23%) are not sure. But just in the last few days, White House spokesman Robert Gibbs seemed to reject any such disagreement in a response to a question about global warming, “I don't think … [global warming] is quite, frankly, among most people, in dispute anymore.” Fifty-nine percent (59%) of Americans say it’s at least somewhat likely that some scientists have falsified research data to support their own theories and beliefs about global warming. Thirty-five percent (35%) say it’s Very Likely. Just 26% say it’s not very or not at all likely that some scientists falsified data.
- Only 27% of voters nationwide favor a single-payer health care system where the federal government provides coverage for everyone. That’s down five points from August. The latest Rasmussen Reports national telephone survey finds that 62% are opposed to a single-payer system.
Politico:
hedgeweek:
- Gross exposures remain well below historical levels among funds of hedge funds, according to Standard & Poor’s latest update on the sector. “Many funds of hedge funds are still dealing with liquidity issues beyond the recovery in equity and credit markets,” says S&P Fund Services lead analyst Randal Goldsmith. “Underlying net market exposures within FOHFs are also below historical levels, but have increased during the third quarter. In general, net exposures have moved up only gradually because hedge fund managers held in FOHFs portfolios have not been convinced on the sustainability of the rally in markets and have preferred to concentrate on alpha generating opportunities.”
Reuters:
- Angola has 13.1 billion barrels of oil in reserves, enough to sustain a constant production of 1.9 million barrels per day for the next 15 years, state-owned Jornal de Angola reported on Thursday. Jornal de Angola quoted oil minister Botelho de Vasconcelos as saying Angola could pump 2.1 million barrels per day but its output capacity is currently limited because of the country's OPEC output quotas. He did not say how much Angola was currently producing. Traders say Angola has repeatedly pumped more oil than what it claims to be its 1.656 million barrel per day OPEC output target. Angola would in the next 12 to 18 months begin liberalizing its oil refining, storage, transportation and distribution businesses, all currently held by state-owned oil company Sonangol, Botelho de Vasconcelos said. Angola, which rivals Nigeria as Africa's biggest oil producer, expects to produce 1.9 million barrels of oil per day in 2010, up from an estimated 1.8 million barrels per day this year, according to the 2010 state budget plan.
- Federal Reserve Chairman Ben Bernanke on Thursday defended his record at the helm of the U.S. central bank before a skeptical Senate that is considering stripping the institution of its regulatory powers. At a hearing on his nomination for a second term as Fed chief, Bernanke admitted to some lapses in oversight but said maintaining hands-on expertise on bank supervision was crucial to the Fed's role as a custodian of financial stability.
Budapest Business Journal:
- The Municipal Court of Budapest will announce a ruling in the case of Soros Fund Management v. PSzÁF next Friday, a lawyer representing one of the sides in the case told MTI on Thursday, the first day of the hearing. The Municipal Court ordered the hearing closed, at the request of the defendant. Soros Fund Management is appealing a HUF 489 million (€1.8 million) fine by financial market regulator PSzÁF levied on the investor for exercising unfair market influence. Soros Fund Management borrowed 325,000 OTP Bank shares and sold them in the last minutes of trade on the Budapest Stock Exchange on October 9, 2008, causing the price to fall more than 9%. PSzÁF estimated the fund profited $675,000 from the transaction, and it set the fine at four times that amount. The Soros fund had paid in the fine it appealed. George Soros, the Hungarian-born American investor who owns the fund, called the sale an unfortunate matter. “I particularly regret the incident due to my strong personal connection to Hungary, even if the company's broker did not violate current Hungarian regulations,” he said.
Handelsblatt:
- President Barack Obama’s administration won’t pressure Germany to send more combat troops to Afghanistan, US special envoy Richard Holbrooke said. Holbrooke, the special envoy for Afghanistan and Pakistan, said the US wants political commitments from NATO allies rather than “numbers.”
Digitimes:
Bear Radar
Style Underperformer:
Mid-Cap Value (+.13%)
Sector Underperformers:
Education (-1.78%), HMOs (-1.75%) and Gold (-1.49%)
Stocks Falling on Unusual Volume:
SNPS, ELON, SI, RTP, TRGT, CAGC, ENDP, PLCE, SIGM, ASIA, CIEN, RINO, SEED, PFG, ARO, FDO, ANF and TJX
Stocks With Unusual Put Option Activity:
1) PSS 2) ACN 3) WY 4) CX 5) NDAQ
Bull Radar
Style Outperformer:
Small-Cap Value (+.50%)
Sector Outperformers:
Hospitals (+1.84%), Semis (+1.48%) and REITs (+1.14%)
Stocks Rising on Unusual Volume:
CMCSK, RMBS, FSLR, TM, BAC, HMC, NVS, PHG, TIN, APWR, HGSI, RYAAY, UTIW, ZUMZ, GIII, CBST, AMZN, OTEX, LRCX, URBN, CSIQ, TSCO, JST, KLAC, SNDA, PCLN, PSS, DEG, FGP, DLM and APU
Stocks With Unusual Call Option Activity:
1) SLE 2) MU 3) CMCSK 4) FDO 5) PSS
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Wednesday, December 02, 2009
Thursday Watch
Late-Night Headlines
Bloomberg:
- Bank of America Corp.(BAC), the nation’s biggest lender, will repay $45 billion of U.S. government bailout funds, helping free the bank from curbs on executive pay that have hampered its search for a new leader. The bank will repay the Troubled Asset Relief Program using $26.2 billion of “excess liquidity” and $18.8 billion from the sale of securities, according to a statement. The firm plans to increase equity by $4 billion through asset sales, and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.
Wall Street Journal:
- Wall Street firm Goldman Sachs Group Inc.(GS)—known for its outsize profits and unapologetically handsome pay packages to go with them—has begun meeting with major investors in an effort to ward off an investor backlash over its record compensation pool. The private discussions are a first for Goldman, several shareholders said, as the Wall Street firm finds its self on the defensive over its pay, where employees are on track to earn an average of more than $700,000 apiece this year. The meetings are expected to last several more weeks and come as shareholders are filing proposals aimed at restricting pay at Goldman. Winning shareholder support for its compensation-and-benefit pool is critical for Goldman executives. While the public uproar over pay has hurt the firm's reputation, shareholders are the actual owners of the firm and the only ones with voting power to change the compensation structure. As a result, Goldman executives have been extremely focused on shareholder feedback. During these meetings, Goldman also has been asking investors how they make voting decisions on shareholder proposals, according to people who heard the conversations. Some investors say the questions suggest Goldman is developing a strategy to navigate any shareholder proposals aimed at reining in pay.
- With DVD sales waning and digital distribution not taking hold, entrepreneurs are offering Hollywood studios alterative solutions. The latest is a Web site called Movieclips.com. Users of the site, launching Wednesday, can find clips from more than 1,200 films, ranging from classics like "The Wizard of Oz" to the latest "Twilight" sequel. The Movieclips site allows fans to rent or purchase films from retailers after browsing clips; it also offers ways to share clips on social networking sites like Twitter or Facebook. In a rare move, all six major Hollywood studios, including Viacom Inc.'s Paramount Pictures and Time Warner Inc.'s Warner Bros., have agreed to license content to the site, perhaps hoping to boost DVD sales by sharing promotional content like clips.
- The National Institutes of Health approved 13 human embryonic stem-cell lines for use in federally funded research, a move that cheered investors in the politically charged field. The NIH announcement follows President Barack Obama's decision in March to lift restrictions on federal funding for embryonic stem-cell research. President George W. Bush had allowed such funding but limited it to 21 stem-cell lines already in place as of August 2001, saying he didn't want a federal incentive for more embryos to be destroyed.
- Within hours of the announcement, a growing number of Democratic lawmakers and candidates began seeking to distance themselves from the president, denouncing the cost of sending more troops, the corruption of the Afghan government, and the lack of emphasis on attacking al Qaeda in Pakistan, rather than simply stabilizing Afghanistan. The liberal activist group MoveOn.org distributed an "emergency petition" Wednesday, saying that Congress "must push the Obama administration to outline firm benchmarks and a binding timeline to bring all of our troops home from Afghanistan as soon as possible."
IBD:
- They're cheering for the government's stimulus package at Cerner (CERN). The $19 billion in federal stimulus funds to motivate hospitals and doctors to convert to electronic medical record-keeping means more business for the developer and vendor of health care data-keeping software and systems.
The Detroit News:
- Michigan has lost $1.9 billion in economic activity and $2.5 billion in home equity value in three years because of population declines in 63 of its 83 counties, according to a Michigan State University study.
The Business Insider:
- Anderson Cooper is fading in the ratings. The respected CNN anchor has seen his numbers slip significantly through the past year. His 10 p.m. show, "Anderson Cooper 360," has declined 62% in total viewers and 70% in adults 25-54 from November 2008, according to Nielsen figures.
Financial Times:
- The number of European companies defaulting on their debts is set to continue to run at more than twice the historic average rate until 2011, with up to 75 companies with junk credit ratings at risk of default. Standard & Poor’s said on Wednesday that while the annual default rate is likely to have peaked at 13.1 per cent in the third quarter of 2009, the slow pace of economic recovery is likely to be insufficient to save many highly leveraged and poorly performing companies. They are forecasting the default rate to be between 8.7 to 11.1 per cent next year, with 55 to 75 western European companies with sub-investment grade credit ratings at risk of default in 2010. The forecast from Standard & Poor’s is the first time the rating agency has given such a precise projection for 2010. It would mark 2010 as the third worst year on record if these defaults materialized, behind 2009 and 2002.
- CME Group(CME), the world’s biggest futures exchange, is nearing a breakthrough deal with some of the world’s biggest banks to clear credit default swaps, according to people close to the negotiations. An agreement with some banks could be announced on Thursday, capping more than a year of discussions.
Globe and Mail:
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (WPI), target $48.
- Rated (BDX) Buy, target $85.
Night Trading
Asian Indices are -.50% to +1.0% on average.
Asia Ex-Japan Inv Grade CDS Index 110.50 unch.
S&P 500 futures +.24%.
NASDAQ 100 futures +.28%.
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Rasmussen Reports Polling
Earnings of Note
Company/EPS Estimate
- (ARST)/.13
- (CPWM)/-1.09
- (NOVL)/.07
- (DLM)/.21
- (TOL)/-.44
Economic Releases
8:30 am EST
- Final 3Q Non-farm Productivity is estimated to rise +8.5% versus a prior estimate of a +9.5% gain.
- Final 3Q Unit Labor Costs are estimated to fall -4.1% versus a prior estimate of a -5.2% decline.
- Initial Jobless Claims for last week are estimated to rise to 480K versus 466K the prior week.
- Continuing Claims are estimated to fall to 5400K versus 5423K prior.
10:00 am EST
- ISM Non-Manufacturing for November is estimated to rise to 51.5 versus 50.6 in October.
Upcoming Splits
- None of note
Other Potential Market Movers
- Fed Chairman Bernanke's Senate confirmation hearings, Fed's Rosengren speaking, Treasury's Barr speaking, retail same-store-sales, ECB rate decision, weekly natural gas inventories, (FE) analyst meeting, (PRX) analyst meeting, (PFG) analyst conference, Jeffries Energy Summit, JPMorgan SMid Cap Conference, CSFB Aerospace/Defense Conference, (ATHN) analyst meeting, (GPRO) analyst meeting and the CSFB Tech Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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