Initial Jobless Claims for last week are estimated to rise to 455K versus 452K the prior week.
Continuing Claims are estimated to fall to 4430K versus 4441K prior.
Upcoming Splits
None of note
Other Potential Market Movers
None of note
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity 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 94.72 bps +1.28%
European Financial Sector CDS Index 94.0 bps +3.45%
Western Europe Sovereign Debt CDS Index 142.50 bps +2.89%
Emerging Market CDS Index 207.48 bps +1.15%
2-Year Swap Spread 16.0 -1 bp
TED Spread 16.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 231.0 +6 bps
China Import Iron Ore Spot $149.80/Metric Tonne -.07%
Citi US Economic Surprise Index -1.70 +2 points
10-Year TIPS Spread 2.16% -3 bps
Overseas Futures:
Nikkei Futures: Indicating +3 open in Japan
DAX Futures: Indicating +30 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical and Retail long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just modestly lower despite today's headwinds. On the positive side, Paper, Internet, Software, Computer, Semi, Disk Drive, Computer Service, Bank, I-Banking, Biotech, Education and Airline shares are all higher on the day. "Growth" shares are outperforming "value" shares again. The SOX Index is jumping +2.87% and looks poised to break out of its 6 month trading range, which is a major positive. The XAL Index is hitting another 52-week high today. (XLF) has traded well today considering (IYR) weakness and pessimism towards bank shares. Lumber is rising +1.62% despite overall commodity weakness. The 10-year yield is rising +8 bps to 2.72%. There is an unusual number of stocks rising on volume today given the losses in the major averages. The Libor-OIS, TED and 2-Year swap spreads are down despite today's jump in sovereign debt angst. On the negative side, Restaurant, Road & Rail, Gold and Construction shares are under pressure, falling more than 1.5%. The Greece sovereign cds is jumping +12.25% to 765.78 bps, the Ireland sovereign cds is rising +3.55% to 438.48 bps, the China sovereign cds is rising +5.42% to 58.70 bps and the Portugal sovereign cds is gaining +3.59% to 347.56 bps. The Emerging Markets Sovereign CDS Index is rising +4.66% to 190.98 bps. While today's sovereign cds jumps are concerning, it is too early to anticipate another meaningful move higher is underway. The broad market continues to consolidate recent gains on below average volume, which is healthy. The bears still show no ability to gain meaningful traction despite today's potential downside catalysts. Action in the shares of (BRCM) and (FFIV) should give the tech bears pause. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, tech sector optimism, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.
Greek Bonds Tumble as Government Says Tax Revenue Falling Short. Portuguese and Greek bonds led so- called peripheral European markets lower after the failure of Portugal’s budget talks and tax-revenue shortfalls in Greece reignited concerns countries may struggle to cut their deficits. Greek bonds fell by the most in more than four months. Finance Minister George Papaconstantinou said a shortage in tax intake is hampering government efforts to reduce its national debt. German government bonds slid as a report showed consumer prices rose in October, making it more likely the European Central Bank will keep removing stimulus measures even as smaller economies in the region lag behind.
China Commodities Decline on Concern Regulators to Tighten Trading Rules. Commodities in China snapped a rally, led by rice, zinc, soybean oil and rubber, on growing concerns that security regulators may tighten trading rules to curb excessive speculation. The Zhengzhou Commodity Exchange, China’s first such bourse, yesterday increased the margin requirement for rice, rapeseed oil, wheat and sugar trading to 8 percent from 3 percent or 4 percent, a statement on its website said yesterday. The exchange will track “abnormal” trade and recommend investigation by watchdogs, a separate statement dated Oct. 25 said.
Bin Laden Warns France Over Backing of U.S., Ban on Veils. Osama bin Laden, the Saudi-born leader of al-Qaeda, warned France that its security is at risk if it continued to support U.S. policies toward Muslim-majority countries and prevent Muslim women from wearing veils. “The equation is simple and easy: As you kill you shall be killed, as you take hostages you shall be taken hostage, and as you infringe on our security we shall infringe on your security,” said the man who tops a U.S. most wanted list of fugitives, in a recording aired by Al Jazeera television today.
Petrobras(PBR) Opens New Oil 'Frontier' With Deepwater Find in Northern Brazil. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, said it opened a “new exploration frontier” off the country’s northern coast after finding signs of light oil at a deepwater well. Petrobras found “large accumulations” of oil in its Barra well in the Sergipe-Alagoas Basin, the Rio de Janeiro-based company said in a regulatory filing today. The discovery at a depth of 2,341 meters (7,680 feet) of water has larger volumes of oil than the Guaricema and Dourado fields in shallower waters of the same basin, Petrobras said. “Wherever they’re going, discoveries highlight more potential, especially offshore,” said Robbert Van Batenburg, head of equities research at Louis Capital Markets in New York.
Wall Street Journal:
SanDisk(SNDK) Poised for Flash Dance. Apple(AAPL) unveiled last week its first complete product line of laptops relying entirely on flash chips for storing data. Lighter and thinner than traditional hard-disk-drive storage, and offering faster start-up times, so-called Nand flash has long been used in digital cameras and portable memory cards. More recently, it has turned up in smartphones, e-readers and tablet computers like Apple's iPad.
Japan Banks Face Worries Over Lending Turmoil. Tumult in the local consumer-finance industry is putting Japanese banking titans Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. under scrutiny as investors worry over their exposure to other lenders' losses.
Greek Default Costs Soar. The cost of insuring Greek government debt against the risk of default jumped Wednesday, underscoring investor concerns about the heavily indebted country less than two weeks ahead of a key national election. The annual cost of insuring $10 million of Greek debt for five years jumped $73,000 to $754,000 as investors continued to react to comments made earlier in the week. The cost of insurance, as measured by credit default swaps, had risen $14,000 on Tuesday.
FBI Arrests Man in D.C. Subway Plot. Federal agents arrested Wednesday a Pakistani-American man who allegedly helped case potential targets for bombings of Washington's Metrorail subway system in an apparent sting operation. The purported plot was set up by the Federal Bureau of Investigation, but the suspect, Farooque Ahmed, 34 years old, of Ashburn, Va., believed it was an al Qaeda bombing conspiracy, according to a grand-jury indictment in Virginia's eastern district.
QE2 Trashing Trifecta: Peter Orszag Joins Gross and Grantham. The president's own former advisor, and now very much outspoken critic, Peter Orszag has joined the cool kids by releasing the following scathing oped in the NYT, whose topic is, drumroll, QE2: "by perpetuating an artificially low 10-year government bond rate, the Fed may be delaying the very fiscal policy action that the nation most needs, while doing little to boost an economy whose principal problem is not high long-term interest rates."
New York Times:
Democrats Retain Edge in Campaign Spending. Lost in all of the attention paid to the heavy spending by Republican-oriented independent groups in this year’s midterm elections is that Democratic candidates have generally wielded a significant head-to-head financial advantage over their Republican opponents in individual competitive races.
Washington Post:
U.S. Afghan Campaign Judge to Be Failing. An intense military campaign aimed at crippling the Taliban has so far failed to inflict more than fleeting setbacks on the insurgency or put meaningful pressure on its leaders to seek peace, according to U.S. military and intelligence officials citing the latest assessments of the war in Afghanistan. Escalated airstrikes and special operations raids have disrupted Taliban movements and damaged local cells. But officials said that insurgents have been adept at absorbing the blows and that they appear confident that they can outlast an American troop buildup set to subside beginning next July.
VentureBeat:
Angel Investors Flee as Seed and Startup Bubble Begins to Deflate. New data released today by the University of New Hampshire’s Center for Venture Research found that angel investors put much less money into startup deals during the first half of 2010 than they did in 2009, a direct refutation of the widely held notion in Silicon Valley that seed valuations have been rising.
Politico:
White House: No Regrets on Health Care, Climate Strategy. The White House doesn't regret simultaneously pushing health care and climate change legislation, despite the ultimate failure to pass cap and trade, President Barack Obama's domestic policy adviser said Wednesday. Barnes said the White House believes the country can still tackle climate change without Congress passing legislation that caps greenhouse gas emissions, noting the push for executive agencies to curb emissions, coupled with efforts at the state and local government levels.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 27% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
Dow Jones:
Acer Inc. fourth quarter revenue may rise from 5 to 10% from the previous quarter, CEO Gianfranco Lanci said. Revenue may increase by 10-15% next year, he said.
Greek real estate prices dropped 11% in the second quarter of 2010 compared with the same time last year, citing figures from a Bank of Greece survey of realtors.
Star:
Turkey's oil and gas exploration agency has discovered shale beds in the country that could hold between 2.6 billion and 8.3 billion barrels of extractable oil. the shale-oil beds near the central cities of Konya and Nigde are similar in geological composition to those in Wyoming, the world's largest.
Cash Hoard Shows Borrowers' Angst Over Economic Growth. U.S. corporations are hoarding almost $1 trillion of cash, an amount that Moody’s Investors Service says shows borrowers are still concerned that the economy may tip back into recession. Cisco Systems Inc., Microsoft Corp. and Google Inc. have socked away the biggest portion of the $943 billion stockpile, Moody’s said today in a report. That’s up from $937 billion at the end of 2009 and $775 billion in the prior year. Companies have a ratio of cash to capital expenditures of 1.64 times, possibly an all-time high, the New York-based ratings firm said, and compares with 1.1 times in December 2008. Borrowers have bolstered their finances by slashing spending and raising cash, selling $945.8 billion of U.S. corporate bonds this year, following a record $1.23 trillion in 2009, according to data compiled by Bloomberg. While that’s helped corporate credit quality improve, a reluctance to use the money for hiring and investing until more signs of growth emerge isn’t helping shorten a “jobless recovery,” Moody’s said. “The mantra is better safe than sorry,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which has $50 billion of assets under management. “Companies have been very aggressive in finding ways to do business without having to hire.”
Arizona Voter Law Requiring Citizenship Proof Invalidated by Appeals Court. Arizona’s requirement that people show proof of citizenship to register to vote was struck down by a federal appeals court, which said the law conflicts with the National Voter Registration Act. The U.S. Court of Appeals in San Francisco today invalidated parts of Arizona’s Proposition 200, a 2004 voter- approved initiative on registration for state and federal elections.
California Borrows $6.7 Billion Cash From JPMorgan(JPM)-Led Group. California borrowed $6.7 billion from JPMorgan Chase & Co. and five other banks to pay delinquent bills that piled up during the state’s record-length budget impasse, Treasurer Bill Lockyer said.
Irish Bondholders Suffer Pain Again as Budget Cuts Take Toll: Euro Credit. Bond investors are losing faith in Ireland’s plan to lower the deficit as spending cuts threaten to undermine economic growth, reducing government revenue. Irish 10-year bond yields climbed within 50 basis points of the 454 basis-point record spread, set Sept. 29, relative to similar-maturity German bunds. Portugal’s spread fell about 1 percentage point against the German benchmark in the past month, the Greek-German yield gap narrowed 102 basis points and the Spanish spread was close to the lowest level since Aug. 10.
Wall Street Proprietary Trading Under Cover: Michael Lewis. A few weeks ago we asked a simple question: Why are the same Wall Street banks that lobbied so hard to dilute the passages in the Dodd-Frank financial overhaul bill banning proprietary trading now jettisoning their proprietary trading groups, without so much as a whimper? The law directs regulators to study the prop trading ban for another 15 months before deciding how to enforce it: why is Wall Street caving now? The many answers offered by Wall Street insiders in response boil down to a simple sentence: The banks have no intention of ceasing their prop trading. They are merely disguising the activity, by giving it some other name.
Fed Gears Up for Stimulus. Eyes Gradual Bond Buying of Several Hundred Billion Dollars; Doubts Linger. The Federal Reserve is close to embarking on another round of monetary stimulus next week, against the backdrop of a weak economy and low inflation—and despite doubts about the wisdom and efficacy of the policy among economists and some of the Fed's own decision makers. The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday. Officials want to avoid the "shock and awe" style used during the crisis in favor of an approach that allows them to adjust their policy, and possibly add to their purchases, over time as the recovery unfolds. Fed Chairman Ben Bernanke's push to restart the bond-buying program—a form of monetary stimulus known as quantitative easing—has been greeted with deep skepticism among some of his colleagues. In some of his strongest words yet, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said Monday that more expansive monetary policy was a "bargain with the devil." In the next few months, internal opposition to Mr. Bernanke's approach could intensify as presidents of three regional Fed banks who have expressed skepticism about the plan—Narayana Kocherlakota of Minneapolis, Richard Fisher of Dallas and Charles Plosser of Philadelphia—take voting positions on the Fed's policy-making body. Some Fed officials argue the economy is going through long-term changes that the central bank can't rush, and worry a large bond-buying program might only stoke future inflation or a new asset bubble. The Fed could leave open the possibility of more purchases in the future, particularly if inflation is projected to remain below 2% and the unemployment outlook remains high, which is currently the expectation of many officials. Or it could halt the program if the economy or inflation surprisingly take off, officials have said. Fed officials will update their forecasts for growth, unemployment and inflation through 2013 at the upcoming meeting.
Steelmakers Brace for Weak Demand. Strength From Early 2010 Is Sapped by Weak Demand, High Costs. After a strong start to the year, the world's biggest steelmakers lost ground in the third quarter and raised caution flags for the rest of the year, expecting to be hit by uneven demand, falling prices and high raw-material costs.
Act Now, CFTC is Urged. A Commodity Futures Trading Commission regulator is putting pressure on the agency to take action in a high-profile, two-year-old investigation of the silver market. At a CFTC hearing Tuesday to consider new rules to strengthen its commodity-enforcement powers, commissioner Bart Chilton said market players have made "repeated" and "fraudulent efforts to persuade and deviously control" silver prices. Mr. Chilton said he believed there have been violations of CFTC rules that should be prosecuted, though he couldn't publicly disclose trader names.
U.S. Lost Communications With 50 Nukes. Communications with some 50 nuclear missiles were disrupted for 45 minutes on Saturday, making it more difficult to launch them and sending the military scrambling to determine the cause of the incident, according to defense officials. The incident was significant enough that President Barack Obama was briefed on it this week.
The Unseen Carbon Agenda. The EPA wants to take away 7% of U.S. power generation. Anyone who cares about the U.S. economy is breathing easier now that cap and tax appears to be on the political garbage barge, but don't be so sure. The White House is still pursuing its carbon agenda through regulation, albeit with almost no public attention, and a new study shows the damage that is already being done.
Fed Zombies Hungry for Quantitative Easing. The easy-money policies of Federal Reserve chairmen Ben Bernanke and Alan Greenspan rarely impress veteran fund manager Jeremy Grantham, but now the chief investment strategist at GMO, a Boston investment firm, is likening Fed actions to an economic horror show. “Adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment,” Grantham wrote in his latest quarterly commentary, “Night of the Living Fed.” In a scathing indictment of the Fed, he casts Bernanke as a desperate zombie whose manipulation of asset prices through lower interest rates — exacerbated by a widely expected second round of quantitative easing beginning next month — weakens not just the U.S. economy but also destabilizes currency and commodity markets.
Forbes:
Now is the Time to Buy Stocks, Argues a Bullish Merrill Lynch. Contrarian report says earnings yield gap, upcoming buybacks to boost equities. Investors have been pouring tens of billions of dollars into bonds and bond mutual funds in recent months, and many are sitting on nice gains to show for it. But like a college party, all good things have to come to an end, and now is the time for savvy investors to move into stocks. That's according to a new report published by Bank of America Merrill Lynch Global Research. A key argument behind the bank's analysis: That corporations have raised so much money issuing bonds that they're going to begin using an increasing share of it to buy back their own stock--boosting the value of the remaining shares outstanding in the process.
CNN Money:
Throwing Darts at Takeover Targets. Many big companies are sitting on wads of cash and showing a willingness to use it on acquisitions. That's led investors to essentially start throwing darts to find takeover targets.
Rasmussen Reports:
Very Unfavorable Ratings for Reid, Pelosi Hit New High. With midterm congressional elections just a week away, the number of voters who view Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid Very Unfavorably have reached their highest levels yet. The latest Rasmussen Reports national telephone survey finds that 60% of Likely Voters have an unfavorable impression of Pelosi, including 52% who hold a Very Unfavorable opinion of her. That’s her highest Very Unfavorable rating since regular tracking began in early February 2009. Only 33% share a favorable impression of the California Democrat, including 16% who view her Very Favorably. Fifty-four percent (54%) view Reid unfavorably, including 41% with a Very Unfavorable opinion, also the highest finding since February of last year. Twenty-nine percent (29%) hold a favorable view of Reid, who is struggling for reelection in Nevada. That includes just seven percent (7%) with a Very Favorable regard for him.
Politico:
Independents Turn to GOP in Senate Races. Independent voters are tuning into Senate races and settling on candidates in the final week before the election, clarifying some of the hardest-fought contests of the campaign. And with many of these unaffiliated voters unhappy with President Obama and the country’s direction, they’re showing signs of breaking to Republicans.
Reuters:
Commercial Property Sales Rebound in Third Quarter. Two of the world's largest commercial real estate services companies reported sharply improved earnings on Tuesday, fueled chiefly by a pickup in building sales and leasing, particularly in the United States. After more than a year of nearly no activity, U.S property sales have begun to pick up as buyers and sellers agreed on prices.
Broadcom(BRCM) Outlook Beats Street, Shares Up. Broadcom Inc's (BRCM) surprise forecast of a potential rise in fourth quarter revenue from strong sales of chips used in gadgets such as Apple Inc's (AAPL) iPhone sent its share price up 12 percent.
F5 Networks(FFIV) Gives Upbeat Q1 View on Market Share Gains. Network equipment maker F5 Networks (FFIV) forecast an upbeat first quarter as it expects strong demand for its products to carry through to fiscal 2011, sending its shares up 5 percent in extended trade.
Illumina(ILMN) Q3 Profit Beats Expectations, Shares Rise. Illumina Inc (ILMN), which makes tools for genetic analysis, posted a higher-than-expected quarterly profit helped by higher product sales. The San Diego-based company's shares were up about 3 percent at $53 in after-hours trade.
Evening Recommendations Citigroup:
Reiterated Buy on (CSGS), raised estimates, target $27.50.
Reiterated Buy on (CMI), target $107.
Night Trading
Asian equity indices are -1.0% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 103.0 +2.0 basis points.
Asia Pacific Sovereign CDS Index 95.75 +.75 basis point.
Durable Goods Orders for September are estimated to rise +2.0% versus a -1.3% decline in August.
Durables Ex Transports for September are estimated to rise +.5% versus a +2.0% gain in August.
10:00 am EST
New Home Sales for September are estimated to rise to 300K versus 288K in August.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil build of +1,000,000 barrels versus a +667,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +652,000 barrels versus a +1,155,000 barrel gain the prior week. Distillate inventories are expected to fall by -1,500,000 barrels versus a -2,155,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a +.6% gain the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Dudley speaking, $35 Billion 5-Year T-Note Auction, weekly MBA mortgage applications report, (ADBE) analyst meeting, (SCHW) business update, (MAR) analyst meeting and the (PCAR) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
