Ireland May Have Just One Month to Stave Off Bailout Danger: Euro Credit. Irish Finance Minister Brian Lenihan may have just one month to stave off an international bailout. The extra yield that investors demand to hold Irish 10-year bonds over German bunds surged to a record yesterday as Lenihan tries to put together a 2011 budget by Dec. 7 that convinces investors he can get the country’s finances in order. “The behavior of international bond markets suggests the government’s various announcements haven’t convinced markets that we are on a credible, stable path,” said Karl Whelan, an economics professor at University College Dublin and a former economist at the Federal Reserve.
VIX Rises for Sixth Day in Longest Streak of Gains Since 2008. The benchmark measure of U.S. options rose for the sixth straight day, the longest streak since January 2008, as investors prepared for bigger share-price swings before congressional elections and the Federal Reserve’s decision on economic stimulus in the next two days. The Chicago Board Options Exchange Volatility Index gained 3 percent to 21.83 at 4:14 p.m. in New York, bringing its six- day advance to 16 percent.
New York State Budget Has $315 Million Deficit After 3 Months, Report Says. New York state’sbudget, completed in early August, is running a $315 million deficit because tax revenue hasn’t increased as much as projected, the Division of Budget said. Tax collections for this year are now forecast at $61.4 billion, down $343 million from August estimates, the division said in a report. The budget for the current year, including federal aid, is now estimated at $135.3 billion. For fiscal 2012, which begins April 1, the state faces a deficit of $9 billion, up from $8.2 billion previously estimated, according to the report.
Australia Unexpectedly Raises Rates; Currency Jumps. The Reserve Bank of Australia unexpectedly increased its benchmark interest rate on concern stronger growth will cause inflation to accelerate, driving the nation’s currency toward parity with the U.S. dollar.
Wall Street Journal:
Opinions Are Split on Fed Policy Move. The Federal Reserve's move to print money to begin a new round of bond-buying, expected to be announced Wednesday, is aimed at lowering long-term interest rates to give the economy a lift. But inside and outside the Fed, there is an unusual divergence of opinions on how much good it will do—if any. Proponents say buying hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy. Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed's ability to manage—and eventually reduce—its holdings.
Greek Opposition Leader: Government Destabilizing Economy. Antonis Samaras, the Greek conservative main opposition leader, said Monday the socialist government's talk of early elections is destabilizing the economy and raising borrowing costs for the country.
Tax Cuts to Dominate Lame-Duck Congress. The White House and Capitol Hill are preparing for post-election chaos over a host of unresolved economic issues, from taxes to jobless benefits, potentially prolonging what has been a lengthy period of uncertainty for taxpayers and businesses.
Pressure Builds on Obama to Shake Up Inner Circle. Some high-level Democrats are calling for President Barack Obama to remake his inner circle or even fire top advisers in response to what many party strategists expect to be a decisive defeat on Tuesday. Tensions have come to the surface after meetings over the past few weeks in which Obama senior adviser David Axelrod discussed communications strategy with senior Democratic strategists and party officials. Some Democrats were so unhappy with the White House meetings, they started their own.
A Hedge-Fund Manager's New Groove. A former hedge-fund manager who made a fortune shorting stocks has switched to the long side, and is raking in money in the process. William von Mueffling surprised clients and competitors last June by announcing he would close his hedge funds and return $3.5 billion to investors. His firm, Cantillon Capital Management of New York, kept managing $1 billion in long-only assets, typically considered the unsexy piece of the business. Now, the 42-year-old stock picker controls more money than he did before he closed his hedge funds.
CNBC:
Toyota China Sales Down for First Time in 18 Months. Toyota Motor's sales in China fell 6 percent in October to 61,600 vehicles, marking the first year-on-year decline in 18 months, the Nikkei business daily reported on Tuesday, citing the company's local arm. The paper said Toyota cars were losing popularity while deteriorating Sino-Japanese relations also may have hit its sales.
Business Insider:
Bill Gross Warns That QE Could Crush the Dollar Another 20%, And Tells Investors to Look Abroad for Returns. According to Tweets from Reuters Jennifer Ablan, Gross predicts that QE could lead to another 20% decline in the dollar, and he's telling investors to look abroad for better returns. Last week, he described the Fed as using Ponzi economics, so he's definitely sounding very negative, and very anti-Fed these days, in manner that's not common for him.
Charlie Gasparino: Wall Street is Terrified of the Tea Party. In an op-ed for WSJ, Charlie Gasparino predicts that by 2012 Wall Street will be out of love with the GOP, and will be heavily supporting Obama. A key reason: Bankers are terrified of Tea Partiers, who have made killing bailout a key part of their plank.
Greek Deputy PM Makes a Huge Gaffe, And Accidentally Reveals The Country's Debt Plans. Classic gaffe here by the Greek Deputy PM Theodoros Pangalos. According to Greek newspaper Kathemirini, Pangalos said in an interview Sunday: “Debts exist to be restructured... We may pursue it ourselves or the option may be offered to us and it could be in our interest to turn it down.” This is in radical contravention to the official party line out of Greece, which is that restructuring would be a disaster.
'Don't Ask' Policy Kept in Place.The Ninth Circuit ruling means “don’t ask, don’t tell” is likely to remain in place for the months or years it could take to decide an appeal, unless President Barack Obama manages to persuade Congress to repeal the statute, which was put on the books in 1993.
Behind the Clinton-Meek Intervention. Bill Clinton’s recent attempts to suggest struggling Democrat Kendrick Meek should opt out of the Florida Senate race rocketed through the Sunshine State when news of the discussions involving Meek and independent candidate Charlie Crist came to light last week. But Clinton’s intervention was only the culmination of a long, delicate, and occasionally testy string of stop-and-start talks that began months ago involving the Florida candidates, the former president, and political aides in the Obama White House, who sought Clinton's intervention as long ago as early spring.
Financial Times:
Debt Costs Jump for Dublin and Lisbon. Borrowing costs for Ireland and Portugal shot up as investors took fright at European proposals to force them to take a greater share of losses in future state bail-outs. The moves in the bond markets on Monday follow agreement at last week’s European Union summit on a Franco-German proposal on a mechanism to resolve future Greek-style sovereign debt crises. Ireland saw the premium it pays over German benchmark interest rates rise to 4.67 percentage points, while the yield on its 10-year bonds reached 7.14 per cent, up 0.22 percentage points. Both the premium and the yield set new records since the introduction of the euro. Meanwhile, Portugal’s yield rose 0.16 percentage points to 6.11 per cent, while Greece and Spain saw smaller rises and European banking shares fell sharply in a broadly flat market. “People do seem shocked about the idea of a future eurozone debt restructuring – but this should not have been a surprise unless you really believed that the German taxpayer would always underwrite everything,” said Erik Nielsen, Goldman Sachs European economist. The rise in the yields of the so-called peripheral nations in the eurozone appears to fulfil the forecast of Jean-Claude Trichet, European Central Bank president, who warned European heads of state last week that the proposed rescue system would increase borrowing costs. Gary Jenkins, head of fixed income at Evolution Securities, said the danger was that by talking about debt restructuring “it could become a self-fulfilling prophecy”. Markets are particularly worried that borrowing costs for Ireland and Portugal could become so high that they are forced to tap the eurozone’s bail-out fund, a potentially destabilising move. Exacerbating the discord among Europe’s leaders, a top ECB official on Monday sharply criticised Germany’s plan to allow a debt rescheduling by a member state. “Calling for an orderly debt restructuring mechanism sounds nice and is costless. Designing and implementing it is somewhat different,” Lorenzo Bini Smaghi, an ECB executive board member, said in a speech in Abu Dhabi.
Financial Post:
Investment Canada Gives Potash(POT) Takeover Tentative Nod. Investment Canada has given a tentative go-ahead to BHP’s controversial takeover of Potash Corp. of Saskatchewan. Conservative insiders say the departmental recommendation sent to the Prime Minister’s desk is a yellow light — strings are attached — to the government’s approval of the $40-billion hostile takeover of the world’s largest potash mining operation by an Australian corporation.
CRI English:
Top Chinese Political Advisor Pledges Support to Syria, Arab Nations. Top Chinese political advisor Jia Qinglin visited the Golan Heights on Monday, pledging support for Syria's efforts to resume the exercise of sovereignty over the mountainous region partially occupied by Israel. "China unswervingly supports the just cause of the Syrian government and people to safeguard their national sovereignty and territorial integrity, backs Syria to resume the exercise of sovereignty there, and supports Syria's long-time efforts for peace in the Middle East," said Jia after visiting the ruins of Quneitra city, the Syrian headquarters for the heights.
China Business News:
China may change money policy to 'stable' from 'moderately loose'.
China may cut its M2 money supply target to 15% or 16% next year, from 17%.
Qiushi:
China needs to stabilize overseas demand as it focuses on expanding domestic consumption because overseas demand remain "critical" for economic development and for employment, Xie Fuzhan, head of the State Council's research office, wrote.
Evening Recommendations Citigroup:
Upgraded (SKH) to Buy, boosted target to $7.
Morgan Stanley:
Reiterated Overweight on (AAPL), target $375.
Night Trading
Asian equity indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 104.0 -3.0 basis points.
Asia Pacific Sovereign CDS Index 97.50 -2.75 basis points.
The weekly retail sales reports, weekly ABC consumer confidence report, Oppenheimer Healthcare Conference, (INFY) analyst meeting, (INFA) financial analyst meeting and the (WHR) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial 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.
North American Investment Grade CDS Index 93.68 bps -.36%
European Financial Sector CDS Index 95.83 bps +2.17%
Western Europe Sovereign Debt CDS Index 153.33 bps +3.60%
Emerging Market CDS Index 204.36 bps -.03%
2-Year Swap Spread 16.0 unch.
TED Spread 18.0 unch.
Economic Gauges:
3-Month T-Bill Yield .10% -1 bp
Yield Curve 228.0 +1 bp
China Import Iron Ore Spot $149.90/Metric Tonne +.54%
Citi US Economic Surprise Index +9.10 +7.4 points
10-Year TIPS Spread 2.19% +3 bps
Overseas Futures:
Nikkei Futures: Indicating -55 open in Japan
DAX Futures: Indicating -27 open in Germany
Portfolio:
Slightly Lower: On losses in my Tech, Biotech and Ag 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 near session lows despite mostly positive economic data. On the positive side, Education, Road & Rail, REIT, Computer Hardware, Coal and Oil Tanker shares are especially strong, rising .5%+. (IYR) has traded well throughout the day. Copper is rising +1.04% and Lumber is rising +1.86%. On the negative side, Airline, Hospital, Biotech, I-Banking, Bank, Semi, Alt Energy and Utility shares are under pressure, falling more than 1.0%. Cyclicals and small-caps are underperforming. The Portugal sovereign cds is gaining +3.08% to 389.72 bps, the Greece sovereign cds is rising +6.57% to 857.77 bps, the Ireland sovereign cds is gaining +5.03% to 495.38 bps and the Spain sovereign cds is gaining +4.71% to 225.57 bps. Moreover, the California Municipal Credit Default Swap is soaring +10.17% to 268 bps, which is just 3 bps below the Illinois cds. Despite today's reversal lower, the broad market continues to consolidate recent gains on below average volume, which is healthy. I continue to believe that with so many investors positioning for a "sell the news" reaction to this week's Fed meeting and US election that any expected weakness may be relatively mild and short-term in nature. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, buyout speculation and earnings optimism.
ISM U.S. Factory Index Rises in October to Five-Month High. Manufacturing in the U.S. expanded at the fastest pace in five months in October, pointing to renewed strength in the industry that led the nation out of recession. The Institute for Supply Management’s factory index increased to 56.9 from 54.4, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth. The ISM’s U.S. new orders climbed to 58.9 from 51.1, while the production index jumped to 62.7 from 56.5. Both were the highest in five months. Measures of employment and export orders also increased.
U.S. Consumer Spending Rises Less Than Forecast, Prices Cool. Consumer spending rose less than forecast in September as incomes dropped for the first time in more than a year, a sign Americans may keep rebuilding savings and paring debt as the economy is slow to recover. Purchases increased 0.2 percent, the smallest gain in the third quarter, Commerce Department figures showed today in Washington. Incomes fell 0.1 percent, the first drop since July 2009, and the Federal Reserve’s preferred measure of inflation stagnated, capping the smallest 12-month gain in nine years. The report showed the damage being done by unemployment near 10 percent, one reason why Fed policy makers may pump more money into the financial system after they meet this week.
Chinese Economic Growth May Face 'Big Drop,' CIC Chairman Lou Jiwei Says. China’s $300 billion sovereign wealth fund said there may be a “big drop” in the pace of the nation’s economic growth in the coming three to four years as more of the population retires. “We cannot use the past 15 years or 30 years as a simple extrapolation of growth trends to forecast China’s future,” Lou Jiwei, chairman of China Investment Corp., said at a forum in Beijing today, according to prepared remarks obtained by Bloomberg News. “If we consider the population factors and the movement to a higher stage of development, it implies that China’s potential economic growth rate will experience quite a big drop in the next three to four years.” China’s start of the one-child policy 30 years ago and longer life spans from better medicines are set to slash the number of working adults able to support each retired citizen. China’s population will change “drastically” as the ratio of working adults to those 65 or older declines from 9 in 2006 to 2.5 by 2050, according to the Washington-based Population Reference Bureau. Individuals 65 or older will account for 24 percent of the population by 2050, rising from 8 percent in 2006, the advocacy group said in a report on its website. That trend will “endanger” the nation’s health care system, according to the group. As a result of its aging population, China’s economic growth rates may slow at an earlier stage of development than in Japan and South Korea, according to the speech transcript. China should introduce a property tax to provide a stable source of funds for local governments, lower its highest income tax rate, and extend its value-added tax beyond manufactured goods to also include services, Lou said.
Exco(XCO) CEO Proposes $4.36 Billion Buyout of Company. Exco Resources Inc., the Dallas-based oil and natural gas producer that had fallen 30 percent this year, said its chief executive officer has offered to buy all shares he doesn’t already own in a purchase that values the company at about $4.36 billion. CEO Douglas H. Miller said Dallas billionaire T. Boone Pickens, Oaktree Capital Management LP and Ares Management LLC, three of the four largest shareholders in Exco, are interested in joining him, according to a letter released today by the company. Miller is offering to pay $20.50 a share in cash, a 38 percent premium over the closing price on Oct. 29.
McKesson(MCK) to Purchase US Oncology in Deal Valued at $2.16 Billion. McKesson Corp., the biggest U.S. drug distributor, agreed to buy closely held US Oncology Inc. for about $560 million to expand in cancer care and medicines. McKesson will pay cash for the deal, valued at $2.16 billion, including $1.6 billion in debt, John H. Hammergren, chief executive officer of the San Francisco-based company, said today on a conference call.
Gains during the worst two-month period for stock investors have coincided with some of the most powerful rallies in the S&P 500. The S&P 500 has gained 13% over the past two months, one of the best showings over the last 30 years. After a 12% gain in the two months during 1982, the index more than doubled through 1987, while the 15% surge in 1998 was followed by a 39% climb through 2000, Bloomberg data show.
Fortinet(FTNT) Said to Be Approached by IBM(IBM); Shares Soar. Fortinet Inc., a maker of network- security systems, has received a takeover approach from International Business Machines Corp., according to two people close to the situation. Fortinet is working with Morgan Stanley and exploring its strategic options, said the people, who asked not to be identified because the talks haven’t been made public.
Fed Likely to Announce $500 Billion of Purchases, Survey Shows. The Federal Reserve will probably begin a new round of unconventional monetary easing this week by announcing a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.
Wall Street Journal:
QE2 No Smooth Ride For Bondholders. If QE2 either disappoints because the scale is too small, or works too well in raising inflation expectations, Treasury yields will rise and corporate bonds will suffer too. This effect will be magnified for investors who sought yield by buying longer-maturity debt.
Bloomberg Businessweek:
Portuguese Parties Agree Austerity Plan for Deficit. Portugal’s government and biggest opposition party agreed to approve next year’s budget as they scrambled to show investors they can cut the euro region’s fourth-biggest deficit and stave off an international bailout. The governing Socialists will reconsider some public-works projects to overcome the opposition of the Social Democrats, who will abstain in the Nov. 3 vote under an agreement signed late on Oct. 29. Portugal is also cutting wages for public-sector workers and raising taxes as the government tries to convince investors it can control the nation’s deficit following this year’s surge in borrowing costs.
Barron's:
Omnivision(OVTI) Reportedly to Supply Image Sensors for Next iPad.OmniVision (OVTI) will supply CMOS image sensors for a second-generation Apple (AAPL) iPad that will launch in the calendar first quarter of 2011, according to a brief research note yesterday from investment firm Detweiler Fenton.
Turkey: Ankara Adds Israel to List of Strategic Security Threats. Turkey and Israel are at it again, but this time it's over reports that Turkey has added Israel to its so-called "Red Book," the top-secret security document that lists the country's threats and enemies. Israeli tourism minister Stas Misezhnikov struck back on Sunday by calling on Israelis to boycott Turkey as a tourist destination out of "national honor." According to Turkish media, the Red Book, which is amended every five years, now identifies Israel as a "strategic threat" to Turkey.
SEC Investigating Deal Between JPMorgan(JPM) and Hedge Fund Magnetar. The Securities and Exchange Commission is investigating whether JPMorgan Chase allowed a hedge fund to improperly select assets for a $1.1 billion deal backed by subprime mortgages, according to people familiar with the probe.
GreenTech:
US Venture Investments in Cleantech Plummet in Q3. Domestic venture capital funding of cleantech businesses fell 55% to $575.6 million in the third quarter of 2010 compared to the same period last year according to a new report from Ernst & Young and Dow Jones VentureSource.
Obama Is Turning Women and Working Families Away From Dems. Thursday’s New York Times/CBS News poll had a few gems buried in it: first, that previously undecided women are now turning to the GOP, for the first time since polls began tracking the breakdown between male and female voters in 1982. In the previous New York Timespoll last month, women preferred Democrats by 7 points. As of yesterday, they prefer Republicans by 4 points--an 11-point swing that suggests that undecided women are moving to the right. In the same results, we also find that the Democrats’ long-standing 20-point advantage among families with incomes of less than $50,000 has been completely erased, replaced by a small lead for Republicans.
Politico:
Evan Bayh Predicts Democrats Will Suffer Big Midterm Losses. Retiring Democratic Sen. Evan Bayh of Indiana on Monday predicted huge losses for his party in Tuesday’s midterm elections, particularly in the House, but suggested that with some “introspection” President Barack Obama “can save himself” before his 2012 reelection campaign. Bayh, who announced his retirement earlier this year in part because he said he no longer wanted to deal with divisive partisanship in Washington, was harsh on the agenda embraced by his colleagues — and himself — adding that the massive GOP pickups he’s predicting on Tuesday should serve as a “wake-up call” for Democrats. “We can save ourselves — the president can save himself — but we have to step back and learn from this,” Bayh said on MSNBC’s “Morning Joe.” “We have to listen to what the public is saying. ... As painful as it will be for people I care about, [Tuesday] will be a wake-up call against business as usual.” Bayh forecast Democrats could lose as many as 60 seats in the House but keep control of the Senate by a slim margin.
Tuesday Could Produce New Latino Stars - in GOP. In an election year when Democrats are accusing the GOP of being anti-immigrant, Hispanic candidates are poised to make historic gains Tuesday – on the Republican ticket. It’s an unusual twist on one of the dominant narratives of the election: The party that reignited the immigration debate by writing the Arizona enforcement law, pushed for repeal of the 14th Amendment, and produced hard-hitting ads against illegal immigrants is likely to wake up Wednesday with a bench of Hispanic Republicans who will be instant celebrities in the political world.
The Twilight of Harry Reid? If Harry Reid loses this election, it will be a crushing end to a storied political career. The majority leader of the United States Senate will have been defeated after four terms by an opponent he doesn't respect or even take seriously. He will be the victim, in his view, of an electorate gone mad, taken down in his prime after rising higher than anyone from his state ever has. Is this the twilight of the majority leader? Reid certainly doesn't think so. He refuses to acknowledge the possibility that he could lose on Tuesday and has refused to grow wistful or discouraged in his campaign's final hours.
Rasmussen Reports:
58% Favor Repeal of Health Care Law. Just before midterm congressional elections in which the new national health care law has been a major issue, 58% of Likely U.S. Voters favor repeal of the measure, including 45% who Strongly Favor it. That’s the highest overall level of support for repeal since mid-September. A new Rasmussen Reports national telephone survey finds that only 36% of voters oppose repeal of the health care law, with 27% who are Strongly Opposed.
