North American Investment Grade CDS Index 95.78 bps +4.37%
European Financial Sector CDS Index 107.17 bps -5.16%
Western Europe Sovereign Debt CDS Index 162.67 bps -1.81%
Emerging Market CDS Index 225.83 bps +6.10%
2-Year Swap Spread 20.0 unch.
TED Spread 15.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 234.0 -5 bps
China Import Iron Ore Spot $163.10/Metric Tonne +1.43%
Citi US Economic Surprise Index +29.20 +.7 point
10-Year TIPS Spread 2.03% -6 bps
Overseas Futures:
Nikkei Futures: Indicating -100 open in Japan
DAX Futures: Indicating +5 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical, Tech and Biotech long positions
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows despite a decline in euro sovereign debt angst. On the positive side, Education and Retail Shares are holding up relatively well, falling less than 1%. The declines in the euro financial sector and western europe sovereign cds are positives. Weekly retail sales rose +2.7% this week versus a +2.6% gain the prior week. The 10-year yield is falling -12 bps to 2.84%. On the negative side, Gaming, REIT, Paper, Steel, Gold, Alt Energy, Coal, Restaurant, Construction, Bank, Disk Drive and Energy shares are under meaningful pressure, falling more than -2.75%. (XLF) and especially (IYR) have underperformed throughout the day. (IYR) is breaking convincingly below its 50-day moving average and looks poised to test the 200-day. Cyclical and small-cap shares are also underperforming. Copper is plunging -5.18% and the S&P GSCI Ag Spot Index is dropping -4.8%. Shanghai copper inventories are up another +9.2% today and have surged +28.9% over the last 5 days. Moreover, the Shanghai Composite has decline -8% over the last 5 days and is poised to test its 200-day. The Illinois and California municipal cds are up another +2.3% and +1.83%, respectively. The US Muni CDS Index is rising +3.95% to 197.50 bps. The Greece sovereign cds is jumping +8.1% to 957.75 bps, the Russian sovereign cds is climbing +5.63% to 151.28 bps and the Hungary sovereign cds is rising +3.72% to 318.55 bps. The euro currency continues to trade poorly. The S&P 500 Implied Correlation Index is surging +18.6% to 63.74. Bloomberg TV is reporting that Democratic Senator Dick Durbin is saying that he is not optimistic that tax cuts will be extended now, which would be a major new negative. Overall investor angst is still a bit too bullish given recent headwinds and the market's overbought technical state, which is also a negative. I expect US stocks to trade mixed-to-lower into the close from current levels on rising US municipal debt angst, tax hike worries, profit-taking, more shorting, eurozone debt concerns and China hard-landing fears.
Ireland Discusses Bailout as EU Struggles With Debt Crisis. Ireland was in talks over a financial rescue as European Union leaders battled to shield Portugal from the resurgent debt crisis and doubts surfaced over Greece’s economic health. “We are in a survival crisis,” EU President Herman Van Rompuy said at the European Policy Centre in Brussels today. “If we don’t survive with the euro zone we will not survive with the European Union.”
Greece Leads Jump in Sovereign Debt Swaps After Austria Says Aid Withheld. Greece led a surge in the cost of insuring European government debt after Austria threatened to block its next transfer of European Union funds because the nation isn’t meeting tax revenue and deficit-cutting targets. Credit-default swaps on Greece soared 86 basis points to 944, the highest since June 29, according to data provider CMA. Contracts on Ireland rose 22 basis points to 515, Portugal climbed 13 to 426, Italy increased 7 to 188 and Spain was up 8 at 259. The Greek budget deficit for last year was revised to 15.4 percent of gross domestic product from 13.6 percent by the EU yesterday, just six months after it agreed a bailout with the EU and International Monetary Fund. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments was 7 basis points higher at 168.
China Stocks Plunge on Concern Inflation May Spur More Controls. China’s stocks fell, driving the benchmark index to the lowest in a month, on speculation the government will intensify measures to curb accelerating inflation including higher interest rates and price controls. PetroChina Co. and Jiangxi Copper Co. plunged more than 6 percent on concern further tightening will curb oil and metals demand. China Vanke Co. slid to the lowest since September, pacing declines by real-estate developers, after the government ordered first-time foreign homebuyers to show proof they don’t own other properties. China Construction Bank Corp. and Agricultural Bank of China Ltd. dropped more than 2 percent on the prospect higher borrowing costs will cut loan growth. “Speculation that the central bank will tighten monetary policy continues to dog the market,” said Wang Cheng, a strategist at Guotai Junan Securities Co. in Shanghai. “The market will be under pressure for the coming three to 12 months from the threat of measures to cool inflation.”The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, tumbled 119.88, or 4 percent, to 2,894.54 at the close, the lowest since Oct. 14. The index has plunged 8 percent in the biggest loss for a three-day period since Sept. 1 on speculation policymakers may raise rates for the second time in two months to curb gains in consumer prices.
BofA(BAC) in 'Hand-to-Hand Combat' Over Mortgages, CEO Says. Bank of America Corp. Chief Executive Officer Brian T. Moynihan said resolving investor demands for refunds over faulty mortgages is a battle that will last at least several more quarters. “It’s a day-to-day, hand-to-hand combat,” Moynihan said today during an investor conference held by the lender in New York. “It’s manageable in the context of who we are, but we’re not going to spend your money unwisely.” Moynihan’s comments highlight the tensions between Bank of America, the biggest U.S. lender, and clients who bought its mortgages or bet on securities backed by home loans. The Charlotte, North Carolina-based company faces demands to repurchase almost $13 billion of loans that may have failed to document required data such as income and home values.
Macau to Tighten Control of City's Casino Industry. Macau Chief Executive Fernando Chui said the Chinese city will tighten control of the number of new casinos, gaming tables and slot machines, Xinhua News Agency said, citing Chui’s annual policy address. Regulators will also enhance supervision of casinos, especially in auditing of financial records, Chui said, as cited by Xinhua. The city will also seek to optimize gaming laws and regulations to stabilize industry development, he said. Macau will exclude casinos from allowed uses for land newly filled in from the sea, instead earmarking it for public housing and industries that will help the economy expand beyond gambling, Chui said.
An announcement of an Irish rescue package may offer only temporary relief for the euro because investors may turn to other so-called peripheral countries in the single-currency region, according to Barclays Plc.
A surplus of supertankers competing for 2 million-barrel cargoes of Middle East crude oil expanded as this month's bookings were concluded, potentially hindering owners' ability to secure better freight rates. There are 9.5% more very large crude carriers, or VLCCs, for hire over the next 30 days than there are cargoes, according to the median estimate of six shipbrokers and two owners surveyed by Bloomberg News today. A week ago, the excess stood at 7%.
The Baltic Dry Index, a measure of commodity-shipping costs, fell for a 14th day as rents for grain-hauling vessels dropped the most in two months. The gauge lost 42 points, or 1.9%, to 2,219 points today. The index has declined 20% in the current run to a three-month low. Rents for all vessel classes retreated, led by a 3.4% slide for panamax ships that carry coal and iron ore as well as grains.
Commodity Speculation Should Be Restricted, EU Commissioner Barnier Says. Michel Barnier, the European Union’s financial services commissioner, said he would seek to limit “risk exposures” derived from “agricultural products.” Commodity speculation “can only lead to further disasters,” Barnier said in a speech in Brussels today. The European Commission, the 27-nation EU’s executive, has targeted excessive market speculation in commodities which it blames for making prices more volatile.
Copper Futures Drop on Concern China May Take More Steps to Slow Growth. Copper fell to the lowest price in almost two weeks on concern that demand will wane in China, the world’s biggest metals user. Global stocks slumped and the Shanghai Composite Index tumbled to a one-month low amid speculation that China will take steps to rein in inflation and curb growth. Copper has rallied fivefold since 2002 as growth in emerging markets boosted demand for the metal used in buildings and electric grids. “Copper is down again after Chinese equities took another pounding,” Alex Heath, the head of industrial-metals trading at Royal Bank of Canada Europe Ltd. in London, said in a report. “The potential for Chinese monetary-policy tightening continued to weigh on investors.” Copper futures for March delivery dropped 11.35 cents, or 2.9 percent, to $3.811 a pound at 10:18 a.m. on the Comex in New York. Earlier, the price touched $3.8005, the lowest level for a most-active contract since Nov. 3.
Senate's Corker Favors Ending Fed 'Dual Mandate' to Focus on Stable Prices. A Republican member of the Senate Banking Committee called for the Federal Reserve to focus solely on price stability rather than its “dual mandate” to fight inflation and maintain full employment. Tennessee Senator Bob Corker released his statement a day after House Republican Mike Pence introduced legislation to restrict the Fed’s activities to inflation fighting.
Top-Rated 10-Year Muni Bond Yields Climb to Highest in Four Months. Yields on top-rated tax-exempt bonds due in 10 years climbed to a four-month high as the market absorbed the highest weekly issuance of municipal debt in at least seven years. Ten-year AAA general obligations jumped 0.04 percentage point to 2.67 percent at 11:07 a.m. in New York, the highest since July 9, according to a BVAL municipal benchmark index. States and local governments are selling $16.3 billion in debt this week, the most on record, according to data compiled by Bloomberg dating to 2003. “We’re going to need a bigger boat,” Tony Shields, a principal in the public-finance department at Williams Capital Group in New York, said in an e-mail. “New supply is close to unmanageable.”
CNBC:
Government Employees Owe Billions in Delinquent Taxes. Deficit cutters struggling to make ends meet in Washington are eyeballing an unusual pot of potential revenue: back taxes owed to the government by federal employees themselves. According to an IRS study last year, those employees and federal retirees owed a staggering $3.3 billion dollars in delinquent tax payments to the government.
As Payouts Rise, New Tactics by the U.S. Pension Insurer. Even though the government pension agency made sharply higher payments to retirees of bankrupt companies last year, it is using new legal tools to make hobbled companies carry more of the burden and protect itself. The Pension Benefit Guaranty Corporation, which insures corporate pension plans, disclosed on Monday that it paid about $5.6 billion to retirees in its last fiscal year, about 22 percent more than in 2009. The number of retirees it pays each month rose to more than 800,000, as 172 more pension plans collapsed, including those at Crucible Materials, Fraser Papers, Hartmarx and Saint Vincent Catholic Medical Centers.
Europe Fears That Debt Crisis Is Ready to Spread. European officials, increasingly concerned that the Continent’s debt crisis will spread, are warning that any new rescue plans may need to cover Portugal as well as Ireland to contain the problem they tried to resolve six months ago.
Charles Rangel Guilty on 11 Ethics Charges. Rep. Charlie Rangel (D-N.Y.) has been found guilty on 11 ethics charges, ending a two-year investigation into his personal finances. A special eight-member panel of the House ethics committee, after deliberating for roughly six hours, found that there was "clear and convincing evidence" that Rangel had violated House ethics on 11 of the 13 charges he faced heading into a rare public ethics trial.
Reuters:
Groups Urge US Senate to Pass China Currency Bill. A coalition of U.S. steel manufacturers and other business groups urged the Senate on Tuesday to pass legislation in coming weeks to pressure China to raise the value of its currency.
Kathimerini:
Greece's government will make final decisions on additional measures for 2011 tomorrow as this year's deficit will be 9.4% of GDP following Eurostat's revision of 2009 data. The extra measures may amount to 4 billion euros. The Finance Ministry has suggested spending cuts of 2 billion euros at hospitals and pension funds, as much as 600 million euros at state organizations, 500 million euros in other operating costs and 500 million euros from improved tax collection and a crackdown on tax evasion.
Caijing:
China should form a U.S. dollar-denominated bond market to absorb "hot money inflows," citing a report by the Chinese Academy of Social Sciences.
Oriental Morning Post:
China may resume a 10% consumption tax on vehicles with engines no larger than 1.6 liters next year, citing an executive with an automaker.
Euro Dominos Will Fall Until Currency is Split: Matthew Lynn. Who’s next? First Greece went bust. Now Ireland is on the brink of a bailout from the European Union and the International Monetary Fund. When it happens, we’ll hear plenty of soothing words about how contagion has been stopped, the euro area has been put on a firmer footing, and the single currency saved. There will be a lot of grand rhetoric about the importance of the European project. Stern condemnations of the speculators will ring out across the continent. Don’t listen to a word of it. The euro has turned into a bankruptcy machine. Once the markets have finished with Ireland, they will simply move on to Portugal and Spain, and after that to Italy and France. There is a domino effect at work, and, with each rescue, the fault lines within the euro grow wider and wider. This process isn’t going to stop until the euro is taken apart.
Gap(GPS), Wal-Mart(WMT) Clothing Costs Rise on 'Terrifying' Cotton Prices. Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs. “It’s a little terrifying to deal with cotton suppliers now,” said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.
Sarkozy Under Pressure as French Debt Market Feels Irish Heat: Euro Credit. French President Nicolas Sarkozy, fresh from skirmishes over plans to raise the retirement age, is now under pressure to reduce the government deficit as investors punish nations such as Ireland for having too much debt. The extra yield investors demand to hold 10-year French government bonds instead of German securities of similar maturity reached 50 basis points last week, the most since June. France’s debt costs more to insure against default than in Chile and Malaysia, both of which have lower credit ratings. Its debt will equal about 84 percent of gross domestic product by the end of the year, more than the Netherlands and Germany, according to estimates from the European Commission. “I’ve never liked the liability profile of France because of its over-reliance on shorter maturities,” said Louis Gargour, chief investment officer at LNG Capital LLP, a London- based hedge fund he co-founded in 2006. “If deficits rise or borrowing costs increase, that debt becomes more difficult to refinance.”
Hedge Funds Increase Natural Gas Bets Before Price Decline: Energy Markets. Hedge funds raised bullish bets on natural gas futures to a six-week high the day before prices plunged on record inventories and warmer-than-expected weather. The funds and other large speculators increased wagers that prices will rise by 24 percent in the seven days ended Nov. 9, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report, which was released yesterday. On Nov. 10, the Energy Department reported that stockpiles rose to 3.84 trillion cubic feet, surpassing last November’s total.
Eton Park, Paulson Sell Stakes in Goldman Goldman Sachs(GS). Eric Mindich’s Eton Park Capital Management LP and John Paulson’s hedge fund sold their stakes in Goldman Sachs Group Inc. during the third quarter. Eton Park previously held 2 million shares of New York- based Goldman Sachs, according to a filing today with the U.S. Securities and Exchange Commission. Paulson & Co. sold 1.1 million shares of the bank, a separate filing shows. Mindich, 43, is a former Goldman Sachs partner who began New York-based Eton Park in 2004 with $3.5 billion, one of the biggest startups in the hedge-fund industry.
Copper Resumes Decline on Concern China Demand May Slow, Dollar's Advance. Copper in London resumed a decline as the dollar’s rebound hurt demand for commodities priced in the U.S. currency amid the potential for slowing demand in China, the world’s largest user. The metal pared early gains in Shanghai. Copper for three-month delivery on the London Metal Exchange fell as much as 0.9 percent to $8,570 a metric ton, and traded at $8,595 a ton by 9:05 a.m. Singapore time.
'Sarah Palin's Alaska' Is Most-Watched Premiere on Discovery's(DISCA) TLC Network. "Sarah Palin’s Alaska," the reality- TV show on Discovery Communications Inc.’s TLC network, drew 4.96 million viewers for its premiere episode last night. The documentary-style series, in which former Alaska Governor Palin explores the state’s wilderness and lifestyle, was the most-watched premiere ever on TLC.
McConnell to Back Ban on 'Earmarks' for Pet Projects. Senate Minority Leader Mitch McConnell, faced with greater influence of lawmakers elected with Tea Party support, dropped his opposition to a plan by House Republican leaders to ban budget “earmarks” for lawmakers’ pet projects.
Pence to Introduce Bill Ending Fed Dual Mandate. U.S. Representative Mike Pence, chairman of the House Republican Conference, said he plans to introduce a bill tomorrow that would end the Federal Reserve’s dual mandate, forcing the central bank to focus on inflation. “The Fed’s dual mandate has failed,” Pence, of Indiana, said in a statement.
Solar panel makers from Arizona to Shanghai face a price crunch in 2011 because they're adding manufacturing capacity just as global demand is poised to fall, Axiom Capital Management Inc. said. The supply of photovoltaic panels may climb to almost triple the level of demand next year, flooding the market and potentially crashing the price, said Gordon Johnson, Axiom's NY-based solar power analyst. "It could be Armageddon," he said in an interview. "Demand is about to fall at a time when you're going to have a significant increase in supply. In a commoditized industry, that is a formula for disaster." Manufacturers have sold a record number of panels this year as developers rushed to connect them to the grid and lock in subsidized power prices before the rates are cut by governments in Germany, Italy and the Czech Republic. In Germany's case, the world's largest panel market, demand will fall in 2011 after the state cuts rates producers earn by 13%, Johnson said. That will glut the market next year for photovoltaic panels, which turn sunlight into electricity, and drive the price manufacturers can charge down to as low as $1.10 per watt from about $1.80 this year, Johnson said.
China's 'State Capitalism' Sparks a Global Backlash. Since the end of the Cold War, the world's powers have generally agreed on the wisdom of letting market competition—more than government planning—shape economic outcomes. China's national economic strategy is disrupting that consensus, and a look at the ascent of solar-energy magnate Zhu Gongshan explains why.
BHP(BHP) to Scale Back its Acquisitions Strategy. After failing three times to execute huge deals, BHP Billiton Chief Executive Marius Kloppers is expected to reveal a change in his acquisitions strategy in favor of buying smaller, more manageable resource companies and focusing less on blockbuster mergers. The Anglo-Australian miner also is likely to increase the size of its $4.2 billion share-buyback program.
U.S. Pursues Wider Role in Yemen. Americans Move to Bring In Equipment and Operatives and Propose New Bases for Fight Against al Qaeda Affiliate.
Illegal Immigrants Win Ruling on College Fees. Illegal immigrants in California may continue to pay the lower in-state fees at public colleges and universities, the state's top court ruled Monday, a decision that saves them as much as $23,000 a year.
California's Destructive Green Jobs Lobby by George Gilder. Silicon Valley, once synonymous with productivity-enhancing innovation, is now looking to make money on feel-good government handouts. California officials acknowledged last Thursday that the state faces $20 billion deficits every year from now to 2016. At the same time, California's state Treasurer entered bond markets to sell some $14 billion in "revenue anticipation notes" over the next two weeks. Worst of all, economic sanity lost out in what may have been the most important election on Nov. 2—and, no, I'm not talking about the gubernatorial or senate races. This was the California referendum to repeal Assembly Bill 32, the so-called Global Warming Solutions Act, which ratchets the state's economy back to 1990 levels of greenhouse gases by 2020. That's a 30% drop followed by a mandated 80% overall drop by 2050. Together with a $500 billion public-pension overhang, the new energy cap dooms the state to bankruptcy.
Google(GOOG) CEO: Android Update "could replace credit cards". The next generation of Android is coming in a few weeks, and that update to the mobile operating system "could replace credit cards," according to Google chief executive Eric Schmidt.
Forbes:
Big Pharma's Comeback? Get ready for plenty of direct-to-consumer advertisements, celebrity awareness campaigns, and big-selling drugs, because Big Pharma appears to have found not just a single hit, but a whole bunch of them.
The Street.com:
David Einhorn Buys Apple(AAPL), Sells EMC(EMC). Hedge fund titan David Einhorn bought more Appleand increased positions in tech stocks during the third quarter, according to the latest regulatory filing with Securities and Exchange Commission.
Politico:
Nancy Pelosi Scrambles to Thwart Rebellion. Nancy Pelosi is getting the first test of her might under the new Democratic reality as she scrambles to extinguish a rebellion against her power to appoint lieutenants to top party posts. Realizing they don’t have the votes to knock the defeated speaker from the top perch in party leadership, moderate Blue Dog Democrats have set their sights a little lower, targeting liberal Pelosi enforcers George Miller (D-Calif.), Rosa DeLauro (D-Conn.) and Louise Slaughter (D-N.Y.), all of whom hold influential jobs because Pelosi has installed them.
Reuters:
Venezuela to Open "Socialist" Securities Exchange. In what President Hugo Chavez described as a blow for "vampire" capitalism, Venezuela will next month open a state-run stock and bond exchange aimed at financing public companies and wooing middle class voters. In recent weeks, Chavez has accelerated his drive to increase the hand of the state in all sectors of the economy including finance, housing and food production. Oil and heavy industry is already largely government run. "The public securities exchange system has been born," Chavez said on his weekly TV show on Sunday in a speech peppered with references to capitalist "vampires" and "vultures." He said it will open in December. "This is not the capitalist exchange, Dracula, this is the socialist exchange. The state and the republic guarantee your money and it will have a good yield."
US Offshore Oil Leasing Could Be Delayed - API. Next year may be the first time in over four decades that the United States does not lease areas in the Gulf of Mexico for oil or gas drilling, because of additional environmental reviews planned by the Obama administration, a major oil lobbying group said on Monday.
Telegraph:
Contagion Hits Portugal as Ireland Dithers on Rescue. The EU authorities have begun to vent their fury against Ireland over its refusal to accept a financial rescue, fearing that the crisis will engulf Portugal and Spain unless confidence is restored immediately to eurozone bond markets.
National Post:
Muslims Told to Reject West: Report. A newly released intelligence report says hard-line Islamist groups want to build a "parallel society" in Canada, which could undermine the country's social cohesion and foster violence. The de-classified Intelligence Assessment obtained by the National Post says extremists have been encouraging Muslims in the West to reject Western society and to live in "self-imposed isolation." The report focuses on groups such as the Muslim Brotherhood and Hizb-ut-Tahrir, which do not advocate terrorist violence but promote an ideology at odds with core Western values. "Even if the use of violence is not outwardly expressed, the creation of isolated communities can spawn groups that are exclusivist and potentially open to messages in which violence is advocated," it says. "At a minimum, the existence of such mini-societies undermines resilience and the fostering of a cohesive Canadian nation."
China Securities Journal:
China will introduce measures to control rising food prices, including limits on how much products may be sold for and subsidies. The government will also increase punishment for speculators in cotton and corn.
21st Century Business Herdald:
China may adjust its economic policies for 2011 on increasing inflation pressure, citing an adviser for the central government's economic work meeting which will be held in December. It is likely that the country will shift to a combination of prudent monetary policy and proactive fiscal policy, citing Yang Tao, a researcher with the Chinese Academy of Social Sciences. There's still space for increasing interest rates and reserve ratios.
China Business News:
Chinese regulators want to remove most risks from loans taken by local government's financing vehicles by the end of 2012. Regulators want to reduce risks by securing repayments and writeoffs. The China Banking Regulatory Commission is asking its local branches to report the result of field checks on financing vehicle loans before Dec. 15.
Evening Recommendations Citigroup:
Reiterated Buy on (EPB), raised target to $38.50.
Reiterated Buy on (ITW), target $58.
Reiterated Buy on (RAI), target $79.
Night Trading
Asian equity indices are -.75% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 109.0 +1.0 basis point.
Asia Pacific Sovereign CDS Index 102.0 -.5 basis point.
The Producer Price Index for October is estimated to rise +.8% versus a +.4% gain in September.
The PPI Ex Food & Energy for October is estimated to rise +.1% versus a +.1% gain in September.
9:00 am EST
Net Long-Term TIC Flows for September are estimated to fall to $62.5 Billion versus a $128.7 Billion in August.
9:15 am EST
Industrial Production for October is estimated to rise +.3% versus a -.2% decline in September.
Capacity Utilization for October is estimated to rise to 74.9% versus 74.7% in September.
10:00 am EST
The NAHB Housing Market Index for November is estimated to rise to 17.0 versus 16.0 in October.
Upcoming Splits
(RAI) 2-for-1
(AOS) 3-for-2
Other Potential Market Movers
The Fed's Lockhart speaking, weekly retail sales reports, weekly ABC Consumer Confidence reading, Morgan Stanley Consumer/Retail Conference and the (FFIV) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 91.77 bps -.79%
European Financial Sector CDS Index 112.28 bps +3.87%
Western Europe Sovereign Debt CDS Index 165.66 bps -2.74%
Emerging Market CDS Index 213.41 bps +1.46%
2-Year Swap Spread 20.0 -2 bps
TED Spread 15.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 239.0 +13 bps
China Import Iron Ore Spot $160.80/Metric Tonne -.62%
Citi US Economic Surprise Index +28.50 -7.5 points
10-Year TIPS Spread 2.09% +1 bp
Overseas Futures:
Nikkei Futures: Indicating +68 open in Japan
DAX Futures: Indicating +9 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical and Biotech long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly higher despite a decline in euro sovereign debt angst, buyout activity and mostly positive US economic data. On the positive side, Road & Rail, Education, Gaming, Disk Drive and Oil Tanker Shares are especially strong, rising more than 1%. (XLF) has outperformed throughout the day. Small-cap and cyclical shares are also outperforming. The Spain sovereign cds is declining -4.56% to 254.83 bps, the Portugal sovereign cds is down -2.80% to 438.61 bps and the Ireland sovereign cds is down -4.93% to 525.34 bps. On the negative side, Homebuilding, Networking, Internet, Gold, Ag and HMO shares are under meaningful pressure, falling more than 1.0%. Tech sector shares have underperformed today. Lumber is dropping -1.5%. The Illinois and California municipal cds are up +3.87% and +4.21%, respectively. Another jump in the Euro Financial Sector CDS Index, despite the decline in euro sovereign debt angst, is also a big negative. The euro currency continues to trade poorly. DRAM prices continue to move lower. The Citi Asia Pacific Economic Surprise Index is falling another -2.2 points today to -3.50, which is very near a 52-week low. The 10-year yield continues to rise too much too fast, gaining another +13 bps to 2.92%. Overall investor angst is a big too bullish given recent headwinds and the market's overbought technical state, which is also a negative. I expect US stocks to trade mixed-to-lower into the close from current levels on rising US municipal debt angst, rising long-term rates, profit-taking, more shorting and China hard-landing fears.
