North American Investment Grade CDS Index 93.22 bps -.49%
European Financial Sector CDS Index 95.17 bps -.38%
Western Europe Sovereign Debt CDS Index 153.33 bps +2.61%
Emerging Market CDS Index 202.37 bps -1.17%
2-Year Swap Spread 16.0 unch.
TED Spread 17.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .11% +1 bp
Yield Curve 224.0 -4 bps
China Import Iron Ore Spot $150.20/Metric Tonne +.20%
Citi US Economic Surprise Index +10.0 +.9 point
10-Year TIPS Spread 2.17% -2 bps
Overseas Futures:
Nikkei Futures: Indicating +45 open in Japan
DAX Futures: Indicating +12 open in Germany
Portfolio:
Higher: On gains in my Tech, Biotech, Retail and Medical 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 equity gains, bank stock weakness and euro sovereign debt concerns. On the positive side, Gaming, Retail, Homebuilding, HMO, Oil Tanker and Alternative Energy shares are especially strong, rising 2.0%+. Small-caps are substantially outperforming. Copper is rising +1.14%. Oil Tanker rates have jumped 33.0% in 5 days. Weekly retail sales rose +2.6% this week versus a +2.7% gain the prior week. The European Investment Grade CDS Index is falling -1.05% to 79.5 basis points. On the negative side, Bank and Disk Drive shares are down slightly. (XLF) has underperformed throughout the day. The Portugal sovereign cds is gaining +2.02% to 402.33 bps, the Ireland sovereign cds is gaining +3.96% to 515.37 bps and the Emerging Market Sovereign CDS Index is gaining +2.46% to 186.22 bps. The odds that neither party controls the Senate after today's midterms have surged to a contract high of 44.0% on Intrade.com. The market has already priced in a GOP victory in the House. A tie or outright victory by the GOP in the Senate is not priced into stocks, in my opinion, and would result in further US equity strength. If the GOP fails to take the House, the market would likely experience significant weakness. I expect US stocks to trade mixed-to-higher into the close from current levels on tax policy/election optimism, less economic fear, buyout speculation, investment manager performance angst and earnings optimism.
Volcker Says Quantitative Easing May Create Inflation in Future. Former Federal Reserve Chairman Paul Volcker, an adviser to President Barack Obama, said quantitative easing may spark inflation in the future and the amount involved may be a cause for concern. “When money is too easy for too long, we will have more” asset bubbles, Volcker, 83, said in Singapore today.
Cotton Advances to Record in New York. Cotton surged to records from New York to China on concern global demand will outstrip supply after cold weather in China and U.S. storms hurt crops. Cotton for December delivery advanced as much as 1.9 percent to $1.3176 a pound on ICE Futures U.S. and traded at $1.3116 at 4 p.m. Tokyo time, gaining for a third day.
Raw Sugar Jumps to 29-Year High. Raw sugar surged to a 29-year high as dry weather crimps output in Brazil, the world’s biggest producer, and India may limit exports to bolster domestic inventories. Output in Brazil’s Center South, the country’s biggest producing-region, tumbled 30 percent in the first half of October from a year earlier, industry association Unica said on Oct. 28. Stockpiles in India, the second-largest grower, are about 4 million metric tons, compared with the nation’s preferred level of 10 million tons, according to Rabobank International.
Oracle(ORCL) to Acquire Art Technology(ARTG) for $1 Billion to Add E-Commerce Software. Oracle Corp., the world’s second- largest software maker, agreed to buy Art Technology Group Inc. for about $1 billion in cash to add e-commerce programs. Art Technology investors will receive $6 a share, Oracle said in a statement today. That’s 46 percent more than the company’s closing price yesterday.
MasterCard(MA) Profit Beats Estimates as Spending Climbs. MasterCard Inc., the world’s second- biggest payments network, posted third-quarter profit that exceeded most Wall Street estimates as more consumers paid with credit and debit cards. Net income climbed 15 percent to $518 million, or $3.94 a share, from $452 million, or $3.45 a share, in the same period a year earlier, the Purchase, New York-based company said today in a statement. The average estimate of 29 analysts surveyed by Bloomberg was for earnings of $3.54 a share.
China Said to Tell Banks to Demand Faster Payment of Local Government Debt. China told banks to ask for faster repayment of local-government infrastructure loans on concern existing debt terms leave them with too much risk, a person with knowledge of the matter said. About 50 percent of loans to the financing vehicles of local governments are for five years or more, with terms for most credits requiring repayment of the principal on maturity, said the person, who requested anonymity. China’s bank regulator asked lenders to revise terms so that payments start when projects are completed and are made in at least two installments a year after that, the person said. The government is trying to limit risks brought about by last year’s surge in loans to local-government finance vehicles for roads, bridges and railroads.
U.S. Homeownership at Decade Low as Foreclosures Rise. The U.S. homeownership rate was unchanged at a 10-year low in the third quarter as banks stepped up property seizures from borrowers who defaulted on mortgages. The homeownership rate was 66.9 percent, matching the second-quarter level that was the lowest since 1999, the U.S. Census Bureau said in a report today.
Buy VIX Put Options on U.S. Midterm Vote, Fed Easing, Goldman(GS) Says. Investors should buy VIX puts because the benchmark measure of U.S. options prices will probably fall should tonight’s elections and the Federal Reserve’s announcement tomorrow meet expectations, Goldman Sachs Group Inc. said.
Ireland Leads Rise in Government Credit-Default Swaps in Europe. Ireland led an increase in the cost of insuring against losses on European government bonds, according to traders of credit-default swaps. Contracts on Ireland surged 28 basis points to 526, surpassing yesterday’s record closing price, according to data provider CMA. Greek credit-default swaps climbed 18 basis points to 850, the highest level since Sept. 17, while Portugal jumped 15.5 basis points to an almost one-month high of 395. Spain rose 6 to 230 and Italy increased 3.5 to 178.5. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 2.5 to a one-month high of 160. The cost of insuring corporate bonds was little changed, with the Markit iTraxx Europe index of 125 investment-grade companies up 0.75 basis point at 99.25 and the Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers 1 higher at 127.5, according to JPMorgan Chase & Co. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings was unchanged at 457.
Gene Patent Ruling Raises Questions for Industry. When the Justice Department declared in a court filing late Friday that genes should not be eligible for patents because they are products of nature, Harold C. Wegner, an influential patent lawyer in Washington, did not mince words. “Eric Holder Hijacks the Patent System, Flunks Patents 101,” Mr. Wegner wrote in an e-mail to 1,250 people, referring to the attorney general. Sharp reaction greeted the declaration that human and other genes are not patentable, a reversal of what had been the government’s policy for decades.One patent lawyer characterized the new position as dumb. The Biotechnology Industry Organization warned that such a policy, if carried out, would “undermine U.S. global leadership and investment in the life sciences.”
FINalternatives:
Illinois Firm Launches Iraqi-Focused Hedge Fund. Illinois-based hedge fund firm Global Capital Investments has launched a new fund that will primarily invest in shares listed on the Iraq Stock Exchange.
Politico:
What to Watch Tonight. All the outstanding questions of the 2010 campaign boil down to this: How big is the wave? Republicans appear to be on the cusp of a historic victory, potentially extending into every level of state and federal government. Beyond the race-by-race polling — across 435 House districts, 37 Senate races and 37 gubernatorial races — all the large-scale signals point toward the GOP.
Dems Prepare for a Long, Tough Night. Democrats braced for deep losses across the country as voters headed to the polls Tuesday, casting ballots in an election that’s expected to deliver a painful rebuke to the party that currently controls both chambers of Congress, a majority of the nation’s governorships and the White House.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday, Election Day, shows that 30% 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 -15 (see trends).
Applebee's Improves, DineEquity(DIN) Shares Soar. DineEquity Inc's (DIN) Applebee's chain posted its first quarterly gain in sales at established restaurants in more than two years and shares rose 13.5 percent.
Option Traders Turn Wary Before Fed, Job Report. In a week of great uncertainty, with the announcement of a massive Federal Reserve buying program widely expected and the jobs report for October due, options traders have become more defensive as they await the unknown.
Oil Price Spikes on Libyan Talk of $100 Barrel. Oil jumped after OPEC member Libya said oil producers would find prices of $100 a barrel more comfortable because of higher food prices and a weaker dollar.
Handelsblatt:
German exports to Iran climbed 11.6% in the first eight months of the year, indicating that European Union sanctions aren't deterring companies from doing business with the Gulf nation.
Kathimerini:
Greece will have to implement further spending cuts this year after lower-than-targeted revenue for 2010, with even stronger measures for 2011. A 2.3% increase on the year in state revenue in the first 10 months, compared with an annual target for an 8.7% rise, will probably lead to revenue shortfall of as much as 2 billion euros and impact on the 2010 budget deficit target.
Les Echos:
BlackRock Inc.'s(BLK) CEO Laurence D. Fink said investors should buy stocks, citing an interview. "Today, bonds are too expensive," Fink said. "We're seeing there is a very significant source of opportunities." The "main threat" isn't that of double dip recession but "a too rapid recovery," Frank said. This would be very damaging for investors, "most of whom are over-invested in bonds and are very reluctant to buy stocks," he said.
Xinhua:
Almost 40% of China's cities are developing in an unsustainable way, citing joint research by Columbia University, Tsinghua University and McKinsey & Co. Of the 112 cities studied in the 2005-2008 period, 44 had become mush less sustainable during the period.
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.
