North American Investment Grade CDS Index 93.99 bps -.77%
European Financial Sector CDS Index 94.92 bps +1.22%
Western Europe Sovereign Debt CDS Index 145.17 bps +1.87%
Emerging Market CDS Index 202.48 bps -2.15%
2-Year Swap Spread 15.0 -1 bp
TED Spread 16.0 unch.
Economic Gauges:
3-Month T-Bill Yield .12% -1 bp
Yield Curve 229.0 -2 bps
China Import Iron Ore Spot $149.60/Metric Tonne -.13%
Citi US Economic Surprise Index -.50 +1.2 points
10-Year TIPS Spread 2.16% unch.
Overseas Futures:
Nikkei Futures: Indicating +4 open in Japan
DAX Futures: Indicating +16 open in Germany
Portfolio:
Higher: On gains in my Tech, Medical and Biotech long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite recent gains, some earnings disappointments and eurozone sovereign debt worries. On the positive side, Gaming, Education, Hospital, I-Banking, Steel, Oil Tanker, Software, Drug and Gold shares are especially strong, rising 1.0%+. Lumber is rising +3.17% and copper is gaining +.24%. The 10-year yield is rising +8 bps to 2.72%. On the negative side, Disk Drive, Computer, Oil Service and Alt Energy shares are under pressure, falling more than 1.0%. The Ireland sovereign cds is rising +5.07% to 460.24 bps and the Portugal sovereign cds is gaining +4.81% to 363.21 bps. The Emerging Markets Sovereign CDS Index is rising +5.09% to 194.28 bps. The broad market continues to consolidate recent gains on below average volume, which is healthy. Most negative news is still being ignored, while positives continue to be rewarded. Even early weakness in Naz heavyweight (AAPL) couldn't provide the bears badly needed traction in the tech sector. Moreover, the DJIA is almost back in positive territory despite substantial weakness in (MMM). I suspect stocks will end the day higher tomorrow after the release of the 3Q GDP report. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.
Ireland Debt-Default Swaps Advance on Anglo Bond Standoff: Credit Markets. The cost of insuring against a default on Ireland’s debt surged to the highest in a month as Anglo Irish Bank Corp. note holders headed for a showdown with the nation’s government. Creditors holding a “blocking position” of Anglo Irish subordinated bonds plan to oppose a debt exchange worth 20 percent of their 1.6 billion euros ($2.2 billion) of securities, adviser Houlihan Lokey said in a statement today. The government has said it will legislate to allow it to impose penalties on subordinated creditors while making senior investors whole, while the bank’s chairman, Alan Dukes, said today he won’t negotiate with junior bondholders opposing the exchange. Credit-default swaps insuring Irish sovereign debt jumped 19 basis points to 463, according to data provider CMA. Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of similar-maturity government debt fell 1 basis point to 164 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The spread has narrowed from this year’s high of 201 basis points on June 11. The Standard & Poor’s/LSTA US Leveraged Loan 100 Index rose 0.03 cent to 91.22 cents on the dollar, the highest since May 10. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has returned 1.6 percent this month. The extra yield investors demand to hold emerging-market bonds rather than government debentures rose 1 basis point to 254 basis points, according to JPMorgan Chase & Co data. Credit-default swaps tied to Allied Irish Banks Plc bonds rose 13.5 basis points to 634.5, according to CMA. The extra yield demanded to hold Irish 10-year bonds over German debt rose by about 5 basis points to 424 basis points, approaching the record 449 basis points last month.
Jobless Claims Unexpectedly Drop to Three-Month Low. Initial jobless claims decreased by 21,000 to 434,000 in the week ended Oct. 23, the lowest since early July when fewer auto plants than normal closed for retooling, Labor Department figures showed today in Washington. The four-week moving average, a less volatile measure, fell to 453,250, also the lowest since July, from 458,750. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent for a third week in the period ended Oct. 16. Eleven states and territories reported an increase in claims, while 42 reported a decline.
Fed Asks Dealers to Estimate Size, Impact of Debt Purchases. The Federal Reserve asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth. “If they buy too much, I think there’s a real chance that rates are going to rise because people are worried about inflation,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
Schwarzman Says Fed Easing Won't Make Much Difference. Stephen Schwarzman, chief executive officer of Blackstone Group LP, the world’s biggest buyout firm, said another round of asset purchases by the U.S. Federal Reserve won’t have much of an impact on companies. “It’s not an enormous incentive to do something different with your businesses because rates are down a few basis points,” Schwarzman, 63, said yesterday in an interview with Bloomberg Television’s Margaret Brennan at the UBS Wealth Management Roundtable in New York. “Money’s already quite cheap.”Schwarzman joins hedge-fund managers Paul Tudor Jones, Clifford Asness and Colm O’Shea in casting doubt on the effectiveness of more so-called quantitative easing. Asness, who runs Greenwich, Connecticut-based AQR Capital Management LLC, said he doesn’t expect any long-term effects from such a move. Colm O’Shea, who runs London-based hedge fund Comac Capital LLP, told investors in August that the Fed would “risk its credibility” with a second round of quantitative easing. Jeremy Grantham, chief investment officer of Grantham Mayo Van Otterloo & Co. in Boston, said in a quarterly letter to investors that the Fed’s quantitative easing will be a “more desperate maneuver than the typical low-rate policy.” Tony James, president of New York-based Blackstone, said today he wasn’t convinced pushing borrowing costs lower would have a positive effect on the economy. “I don’t see that lower rates are going to encourage American industry to borrow and build,” James said today on a conference call with reporters. “It has a counter-stimulative effect. I don’t think it works.” Schwarzman said the Dodd-Frank Act, a regulatory overhaul enacted this year that expanded the Fed’s authority to oversee non-bank financial firms deemed “too big to fail,” will prolong the period of slow growth and will “depress the level of recovery” of the U.S. economy.
China May Levy Property Tax That's .6% of Value. China may levy a property tax of about 0.6 percent of the value of homes, the Securities Times reported today, citing a person familiar with the situation. First homes will be excluded from the tax, the Shenzhen- based newspaper reported. Work on starting trials of the property tax may start as early as the end of this year, according to the report.
Rice Advances for a 13th Day, Longest Wining Streak Since at Least 1989. Rice rose for a 13th day in Chicago, the longest winning streak since at least 1989, after the Philippines said storms caused 523,013 metric tons of crop losses. The Philippines, the world’s biggest rice buyer, last year produced 9.8 million tons of the grain and imported 2.2 million tons, according to data from the U.S. Department of Agriculture. Rice has added 17 percent since Oct. 11, the last time futures fell. The current streak of gains is the longest for data compiled by Bloomberg going back to 1989.
Taiwan Semiconductor Posts $1.5 Billion Quarterly Profit, Beating Estimate. Taiwan Semiconductor Manufacturing Co., the world’s largest contract manufacturer of chips, forecast fourth-quarter sales and profitability that beat analysts’ estimates as demand for electronics climbs. Revenue will be at least NT$107 billion ($3.5 billion) in the three months ending Dec. 31, the Hsinchu, Taiwan-based company said today. That surpasses the NT$104.7 billion average of 18 analyst estimates compiled by Bloomberg. TSMC posted a 54 percent increase in third-quarter net income to NT$46.9 billion, beating analysts’ estimate of NT$40 billion. TSMC joins smaller rival United Microelectronics Corp. in forecasting a better-than-expected outlook as demand for electronics including smartphones improves. The company’s spending on equipment in 2011 will rise above this year’s record $5.9 billion budget as revenue growth exceeds an estimated 14 percent gain for the custom-chip market, TSMC said. “There’s still considerable demand that we cannot schedule production for,” Chairman and Chief Executive Officer Morris Chang said at an investor conference in Taipei.
Syniverse(SVR) to Be Taken Private by Carlyle in $2.6 Billion Deal. Syniverse Holdings Inc., the maker of mobile-phone messaging and network technology, said it will be taken private by Carlyle Group in a $2.6 billion buyout. Carlyle, the world’s second-largest private-equity firm, is offering investors $31 a share in cash, Syniverse said today in a statement. That’s a 30 percent premium to the Tampa, Florida- based company’s closing price yesterday.
Chicago's Bond Rating Cut One Level by Fitch. Chicago, the third most-populous U.S. city, had its credit ranking on $6.8 billion in general- obligation bonds cut one level to AA- by Fitch Ratings. It was the second time in less than three months that Fitch has lowered the city’s debt grade as it uses reserves and one- time revenue measures to balance its budget. “While the economy remains broad and diverse, the city’s financial position has weakened as reflected by multiple years of budget gaps and structural imbalance, as well as a large and rapidly growing unfunded pension obligation,” Fitch said today in a report.
Wall Street Journal:
US Education Department Releases Higher Education Rule Package. The U.S. Department of Education on Thursday will release a series of new rules governing higher education, including restrictions on recruiter compensation and new requirements on disclosing graduation and job placement rates at career-focused programs. The rules, which have been in the works for more than a year, go into effect July 1.
Mortgage Rates Seen Rising to 5.1% in 2011. Mortgage rates may be as low as they will go, with the average 30-year fixed-rate home loan on course to rise after hovering for months at historically low levels.
Money-Market Inflows $24.09 Billion in Latest Week. Assets in money-market funds climbed $24.09 billion in the week ended Tuesday, more than rebounding from a steep outflow the prior week, as investors added money to prime and government funds.
IRS Paid Out $111 Million in Erroneous Stimulus Tax Breaks. The U.S. Internal Revenue Service had difficulty implementing new tax benefits in 2010, paying $111 million in erroneous benefits related to the stimulus law, a Treasury Dept. report said.
CME(CME) Profit Climbs 21%. Robust trade in derivatives contracts linked to commodities, interest rates and indexes helped to lift CME Group Inc.'s third-quarter earnings 21%, offsetting a rise in expenses. The world's biggest futures-exchange operator also continued to deleverage its balance sheet, paying down $300 million in debt over the quarter in a move seen clearing the way for a share buyback.
CNBC:
Wall Street Reform Architect Barney Frank Fights for Survival. Representative Barney Frank, the outspoken, witty Democrat closely tied to the 2008 U.S. bank bailout, faces a tough re-election battle after 15 terms in office at a time when incumbency itself is a liability.
California Chamber of Commerce Fights Pot Proposition. A California ballot initiative that would legalize adults’ recreational use of small amounts of marijuana is raising questions about its potential impact on workplaces in the Golden State should the measure pass on Nov. 2.
Tax Shortfalls Spur New Fear on Europe's Recovery Bid. With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors. Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it.
Wash and Weep. A new worry has emerged for cash-strapped shoppers: higher clothing prices. That's right, on top of a shaky job market, high unemployment and little wage growth, consumers may soon be forced to dig deeper when clothes shopping. The bad news bombshell was dropped yesterday by Jones Group -- the New York-based apparel company that makes department-store staples like Nine West and Anne Klein -- which warned that the rising cost of manufacturing, shipping and raw materials, like cotton, is squeezing margins, and that retailers will likely be forced to raise prices to shore up profits.
California Politicians Busted for Spending Taxpayer Money on New York Entertainment. As if New York doesn't have enough crooked politicians of its own . . . The bright lights of Broadway beckoned corrupt California officials to cross the continent and spend taxpayer money on nights at theaters, baseball games and pricey dinners at the Big Apple's finest bistros, authorities charged yesterday.
Politico:
President Obama to Visit Mosque in Indonesia. President Barack Obama will visit one of the world’s largest mosques when he makes good on a long-delayed promise to visit Indonesia, the island nation where he lived briefly as a child. The president will visit Istiqlal Mosque in Jakarta — the largest mosque in Southeast Asia and the third largest Muslim house of worship in the world — during his swing through the country Nov. 9-10.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 25% 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 -20 (see trends).
65% Favor Getting Rid of Entire Congress and Starting Over. Let’s face it: Most Americans don’t have much use for either of the major political parties and think it would be better to dump the entire Congress on Election Day. A new Rasmussen Reports national telephone survey finds that 65% of Likely U.S. Voters say if they had the option next week, they would vote to get rid of the entire Congress and start all over again. Only 20% would opt to keep the entire Congress instead.
USA Today:
Doctor-Owned Hospitals Race to Beat Medicare Deadline. At the Cypress Pointe Surgical Hospital here, construction workers scrambled on a recent day to turn a mud pit into a parking lot and put other finishing touches on the $35 million physician-owned facility. They are on a tight deadline. The health care overhaul law closes the door on future physician-owned hospitals, requiring new ones to be open and certified by Medicare by Dec. 31. Otherwise, they'll be barred from taking part in Medicare, the health program for the elderly, as well as other federal health programs. That would be a fatal blow to most hospitals because about half of their revenue comes from those programs.
A Saudi prince who has aided the imam spearheading Park51, the proposed Islamic center two blocks from Ground Zero, says it would be better to shift to another site not associated with the Sept. 11 attacks. In an interview with the Dubai-based Arabian Business magazine, Prince Alwaleed bin Talal says moving the center, which includes a mosque, other education and recreation facilities would respect the wounds still felt by New Yorkers. Associated Press says this reportedly the prince's first public comments on the dispute.
Hispanics in U.S. More Divided Over Illegal Immigrants. Hispanics are growing more divided about how they view illegal immigration, and native-born Hispanics aren't as convinced of the contributions of illegal immigrants as they used to be, according to a study released today. Hispanics are split when asked to assess the effect of illegal immigration on Hispanics living in the United States: 29% say they've had a positive impact, 31% negative and 30% believe it made no difference, according to the study from the non-partisan Pew Hispanic Center. That is a sharp decline from a 2007 survey, when 50% of Hispanics said illegal immigrants were having a positive impact.
The Fed is Fueling the Catastrophe of Fast Rising Raw Materials Prices. Is the world running out of food, alongside oil, metals, water and much else? The answer to this question, according to a recent OECD and UN Food and Agriculture Organisation report is a definitive no; global agricultural production is on track to satisfy the expected long-term increase in demand, the OECD reckons. Yet it's little thanks to public policy, which in combination with the current craze among financial speculators for commodities, seems hell bent on driving up prices to what for millions of the world's poor may be starvation levels. There are two main ways in which policymakers are insidiously interfering with the usual rules of supply and demand for raw materials, and myriad different smaller ones. We'll leave aside the smaller ones, such as China's attempt to leverage its monopoly of rare earth metals for geo-political purposes, and concentrate instead on the two biggies. One is the policy of ultra-cheap money in advanced economies to fight the economic crisis; and the other, more commodity-specific one, is massive public subsidy for the production of bio-fuels. Food is being elbowed out by pursuit of "clean fuel".
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.
