North American Investment Grade CDS Index 121.02 bps +.28%
European Financial Sector CDS Index 159.30 bps +1.22%
Western Europe Sovereign Debt CDS Index 150.33 bps +13.46%
Emerging Market CDS Index 277.07 bps -1.83%
2-Year Swap Spread 43.0 -2 bps
TED Spread 40.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .14% -1 bp
Yield Curve 253.0 +4 bps
China Import Iron Ore Spot $145.40/Metric Tonne +.97%
Citi US Economic Surprise Index +15.80 -2.3 points
10-Year TIPS Spread 2.04% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +187 open in Japan
DAX Futures: Indicating +29 open in Germany
Portfolio:
Higher: On gains in my Biotech, Medical, Retail and Technology long positions
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite rising sovereign debt angst and mostly weaker European shares. On the positive side, Airline, Hospital, Biotech, Semi, Steel, Oil Service, Energy, Oil Tanker and Coal stocks are significantly higher on the day, rising 3.0%+. Small-cap and cyclical shares are outperforming. Weekly retail sales rose +2.7% this week versus a +2.8% rise the prior week. This is down from a +3.9% increase the first week of April, but up from a +2.4% gain the first week of May. On the negative side, Education, Retail, REIT, Telecom and Defense shares are underperforming. (IYR) has underperformed throughout the day. Most cds indices are rising today, with the big jump in the Western Europe Sovereign CDS Index being an especially large negative. Copper isn't participating in today's equity rally. As well, the S&P GSCI Ag Spot Index is breaking down further into a bear territory, falling -1.3% and taking out its July 2009 low. This index is now down -21.4% in less than 5 months. It is also noteworthy that Chinese Wholesale Spot Pork is down -15.1% over the last 4 1/2 months and the Chinese government has announced a stockpiling program to prevent further price declines. Much of today's stock rally is related to short-covering and bargain-hunting in the worst-performing stocks. I would like to see the S&P 500 close convincingly above its 200-day moving average, with better volume and leadership and a breakdown in key cds indices before becoming more aggressive on the long side. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less energy sector pessimism, declining economic fear and diminishing financial sector pessimism.
Iran Selling 45 Billion Euros of Reserves for Dollars. Iran’s central bank began the first phase of the 45 billion-euro ($55 billion) sale of some of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing people it didn’t identify. The bank is selling 15 billion euros in the first of three stages, which will be completed by Sept. 22, the newspaper reported on its website on May 31. Iran will “substantially” decrease its oil sales in euros, the paper said. It informed Japan and other crude-oil customers of the change, Jaam-e-Jam said. The Persian Gulf country’s euro reserves are 55 percent of the total, and would be reduced to 20 to 25 percent after the sale is complete and after oil sales in euros have been reduced, the paper said. Iran’s shift out of euros has been prompted by the single currency’s decline, said Jaam-e-Jam, which is owned by the state broadcaster. Other central banks, including those of the Persian Gulf states, also are selling their euro reserves, it said.
Wealthy Investors Betting on Property, Stocks, Barclays Says. Wealthy investors globally are avoiding derivatives and hedge funds and turning to property and stocks following the global financial crisis and economic downturn, Barclays Wealth said, citing a survey.
German Finance Minister Wolfgang Schaeuble said that high budget deficits are the main cause of the financial crisis.
Spain's $38 Billion Maturing Debt Fuels Sovereign Swaps Surge. Credit-default swaps on European sovereign debt rose for the third day as speculation Spain will struggle to refinance $38 billion of debt next month stoked concern the region’s deficit crisis may worsen. Swaps on Spanish government debt jumped 17 basis points to 270, according to CMA DataVision, nearing the record 274 basis points set two days before the European Union pledged $1 trillion on May 10 to ease the region’s budget troubles. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 8 basis points to 156.5, approaching the all- time high of 161 on May 25. Spain, which lost its top grade from Fitch Ratings last week, has to refinance more than 48 billion euros ($59 billion) of debt between June and September, with the majority due next month, according to Bank of America Corp. data. “Worries over the amount of debt maturing over the next three months is casting a shadow over the market and clouding investor sentiment,” said Gary Jenkins, head of credit research at Evolution Securities Ltd. in London. Credit-default swaps on Portugal rose 18 basis points to 364, according to CMA. Contracts on Greece jumped 44.5 basis points to 766 while Ireland was up 22 at 283 and Italian swaps climbed 17 basis points to an all-time high of 249. The cost of insuring against losses on company debt also rose with the Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings climbing 11 basis points to 586.5, according to JPMorgan Chase & Co.
German Cabinet Backs Short-Selling Ban to Help Euro. Chancellor Angela Merkel’s Cabinet backed a ban on naked short-selling of credit-default swaps on euro-area government bonds and stocks of German companies, as the government moved to anchor steps to stop speculators in law. The proposal, approved by ministers meeting in Berlin today, also gives Germany’s Finance Ministry and the BaFin regulator leeway to ban euro-related derivatives trades without seeking further endorsement by lawmakers, according to the text of the bill e-mailed by the Finance Ministry.
Japan May Face Fiscal Crisis in 15 Years, Komine Says. The Japanese government may suffer fiscal collapse in 10 to 15 years if the ruling Democratic Party of Japan maintains its expansionary spending policy, said Takao Komine, a professor at Hosei University and former bureaucrat. Even though “Japan’s fiscal conditions are very severe, people were saying voicing such concern was like crying wolf,” Komine, 63, said in an interview in Tokyo yesterday. “However, since the wolf has appeared in Greece, people have started worrying it may show up in Japan as well.” Global scrutiny of sovereign debt has intensified as fiscal deficits in Europe swell, a crisis Finance Minister Naoto Kan has said the government needs to learn from as Japan’s public debt approaches 200 percent of gross domestic product. He also said Japan’s debt may exceed households’ financial assets around 2020, causing uncertainty over whether Japanese will be able finance government bonds. “Japan’s finances may collapse eventually, but it’s a story that may take 10 years or 15 years,” said Komine, who also sits on a government committee that charts the economic cycle. “But if the market’s trust is shaken, such a tipping point will come earlier.”
Nasdaq Proposes Tiered Circuit Breakers to Supplement SEC Rules. Nasdaq OMX Group Inc. announced a proposal to temporarily halt trading for any stock it lists in the U.S. when its price moves a specified amount, supplementing a Securities and Exchange Commission plan to pause transactions during periods of volatility. The trading curb would be triggered by levels depending on the price of the stock, according to Wayne Lee, a spokesman for New York-based Nasdaq. For shares trading below $1.75, the threshold is a 15 percent rise or fall, he said. Between $1.75 and $25, it’s 10 percent; $25 to $50, 5 percent; and more than $50, 3 percent, he said. The SEC proposed a halt last month for Standard & Poor’s 500 Index companies that rise or fall at least 10 percent in 5 minutes.
Wall Street Journal:
Rich Chinese Flee to Avoid Taxes, Anger. Maryland and New Jersey aren’t the only ones experiencing wealth flight. An article in the Straits Times says the rich in China are increasingly fleeing home to avoid taxes, government crackdowns and rising popular resentment. Some of the most popular destinations include Australia, Canada, Singapore and the U.S.
NBC Boss Eyes $30M+ Exit Deal From Comcast. General Electric(GE) has finalized details of Jeff Zucker's exit deal from NBC Universal, according to sources familiar with the situation. Zucker will leave "a couple of months" after Comcast Corp. closes its agreement to acquire a 51 percent stake in the media giant from its current owners General Electric and Vivendi -- with an exit package of roughly $30 million to $40 million, under the proposed exit deal, those sources said.
Business Insider:
Google's(GOOG) Windows-Killer Coming This Fall. Google (GOOG) plans to launch its own operating system for laptop PCs sometime in the "late fall," an executive said at the Computex PC show this morning.
Contaminated Cocaine Can Cause Flesh to Rot. Cocaine abusers -- already at risk for an abnormal heartbeat, blood pressure problems, hallucinations, convulsions and stroke -- can add another potential health complication to the list: rotting flesh.
Rahm Emanuel Subpoenaed by Blagojevich: Attorney. President Obama's chief of staff Rahm Emanuel was subpoenaed by the defense to testify in Rod Blagojevich's upcoming trial, a Blagojevich attorney told the Chicago Sun-Times.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -14 (see trends).
Foxconn Technology Group confirmed another employee death in China. AFP cited China Labor Watch and a relative of the dead man as saying that Yan Li, 27, died on May 28 of exhaustion after working the night shift for a month at a plant in Shenzhen.
Interfax:
Terrorists are trying to gain access to nuclear, biological and chemical materials in Russia and other Commonwealth of Independent States countries, citing Alexander Bortnikov, head of Russia's Federal Security Service.
Handelsblatt:
European governments were too quick to adopt the euro and set up the currency union for ideological reasons, Oliver Williamson, co-winner of the 2009 Nobel Economic Prize, was cited as saying. While a shared currency makes sense, developing the European Union takes time, Williamson said. It's problematic that the euro deprives member countries of some monetary policy options, the professor emeritus at the Univ. of California at Berkeley said.
Cinco Dias:
Spanish banks are being charged more to borrow on the interbank market than lenders elsewhere, citing Banco Pastor SA Chairman Jose Maria Arias. Spanish banks are charged 1% to borrow overnight by foreign banks, compared with a global average of .3%.
China Ministry of Commerce:
China's government bought pork for stockpiling in an attempt to stabilize market prices and protect the interests of farmers, the Ministry of Commerce said in a statement on its website today.
