North American Investment Grade CDS Index 90.18 bps -2.39%
European Financial Sector CDS Index 102.33 bps -.19%
Western Europe Sovereign Debt CDS Index 163.0 bps -.71%
Emerging Market CDS Index 218.48 bps -2.89%
2-Year Swap Spread 18.0 unch.
TED Spread 15.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% -1 bp
Yield Curve 240.0 +2 bps
China Import Iron Ore Spot $163.20/Metric Tonne unch.
Citi US Economic Surprise Index +29.90 +5.8 points
10-Year TIPS Spread 2.11% +3 bps
Overseas Futures:
Nikkei Futures: Indicating +122 open in Japan
DAX Futures: Indicating +4 open in Germany
Portfolio:
Higher: On gains in my Medical, Retail, Technology and Biotech long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges, covered some of my (EEM) short, added to my (GOOG) long
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades meaningfully higher despite ongoing US municipal debt fears, China inflation concerns, tax policy uncertainty, US housing worries and euro sovereign debt angst. On the positive side, Airline, Gaming, Construction, Disk Drive, Computer, Internet, Oil Service, Energy and Coal shares are especially strong, rising more than 2.25%. Cyclical and small-cap shares are outperforming. Copper is jumping +2.8%. The Ireland sovereign cds is dropping -4.03% to 503.02 bps and the Hungary sovereign cds is falling -5.29% to 299.75 bps. Moreover, the California Municipal CDS is falling -2.79% to 287.93 bps and the Illinois Municipal CDS is falling -2.67% to 292.0 bps. The AAII % Bulls fell to 40.0 this week, while the % Bears jumped to 32.5, which is also a big positive. On the negative side, Education, HMO, Hospital and Utility shares are underperforming, rising less than .5%. (IYR) has also underperformed throughout the day. The Greece sovereign cds is jumping +3.78% to 992.90 bps. The UK, Portugal and Spain sovereign cds are flat after recent sharp gains, which is also a big negative. Given euro currency strength and global equity optimism today, I would have expected a much larger drop in sovereign cds. If the euro debt situation begins to temporarily calm again and these cds come in, stocks should test their 52-week highs. I expect US stocks to trade mixed-to-lower into the close from current levels on tax hike worries, more shorting, eurozone debt concerns, US housing worries and China inflation fears.
Ireland Turns to EU as Trichet Says ECB Aid Limited. Ireland said it may ask for an international bailout as European Central Bank President Jean- Claude Trichet signaled debt-laden nations can’t rely on him to keep their financial systems afloat forever. Finance Minister Brian Lenihan said in Dublin he would welcome the creation of “substantial contingency capital funding” for Irish banks, as they became “unmanageable for the state itself.” In Frankfurt, Trichet said in a speech that policies first used to fight the global credit crisis can’t “evolve into a dependency as conditions normalize.” The ECB is concerned that banks in Ireland and Greece are becoming too reliant on its unlimited money market operations and is pushing Ireland to accept a rescue funded by European Union governments and the International Monetary Fund.
Economic Data Show U.S. Recovery Accelerating. The index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in the Philadelphia area and jobless claims climbed less than forecast, signaling the world’s largest economy is accelerating. “The soft patch is behind us,” said Jonathan Basile, an economist at Credit Suisse in New York. “We have a little more momentum. Employers are getting a bit more optimistic about the outlook and don’t need to cut costs like before.”
Credit Swaps Drop Amid U.S. Jobless Report, Ireland Debt Talks. The cost of protecting corporate bonds from default in the U.S. fell to the lowest level since Nov. 8 as a report showed fewer Americans than expected sought jobless benefits and European negotiators discussed a rescue plan for Ireland’s banks. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 2.8 basis points to a mid-price of 89.7 basis points as of 9:07 a.m. in New York, according to index administrator Markit Group Ltd.
GE Capital Survey Finds Recovery Optimism, Hiring Among Midsized Companies. GE Capital, one of the biggest lenders to small and midsize U.S. companies this year, said a survey showed most chief financial officers see improved capital access, low to moderate economic growth and “healthy” hiring. “None of the CFOs expect a double dip, and 84 percent see stable to improving” economic conditions, Dan Henson, who oversees GE Capital in the Americas, a unit of Fairfield, Connecticut-based General Electric Co., said in a telephone interview.
JPMorgan(JPM) Boosts CLO Sales Targets as Investors Seek Yield Pickup. JPMorgan Chase & Co. analysts are increasing their expectations for sales of collateralized loan obligations for the next two years as investors hunt for yield. The New York-based bank expects CLO sales will rise to $12.5 billion next year up from $10 billion initially forecasted, JPMorgan analysts Rishad Ahluwalia and Maggie Wang said in a note today. Sales of the debt in 2012 will climb to $25 billion from the initial estimate of $20 billion.
Deutsche Bank 'Most Exposed' to Derivatives, Mediobanca Says. Deutsche Bank AG, Germany’s largest bank, is the most exposed to derivatives contracts among top European lenders, according to a research report by Italian investment bank Mediobanca SpA. Deutsche Bank’s derivatives contracts are equivalent to 39 percent of the lender’s total assets at the end of June, analysts at Mediobanca wrote in the report published today. Mediobanca analyzed the 16 biggest European banks by assets and the two largest Italian lenders, UniCredit SpA and Intesa Sanpaolo SpA. As of June 30, “the less exposed banks’” to derivatives contracts were Lloyds Banking Group Plc, Credit Suisse Group AG and Banco Santander SA.
IMF Says Hong Kong's Asset Inflation May Spur Slump. The International Monetary Fund said Hong Kong’s accelerating asset inflation risks causing a bust that leads to deflation and an extended economic “downturn,” and urged further measures to rein in property prices. “Depending on the amplitude of the upswing, the resulting downturn could prove both protracted and painful,” the IMF said in a report today. The government should consider increasing stamp duties on housing and taxes on owners of higher-end properties if prices continue to rise, it said. Hong Kong home prices have climbed about 50 percent since the start of last year, surpassing a 1997 peak that was followed by a six-year deflationary slump.
Marriage Rate Falls to About 50% as People Say Institution is Obsolete. About half of all adults in the U.S. are married, down from 72 percent in 1960, while 4 in 10 people consider marriage obsolete and most say their definition of family has changed, according to a poll. In a telephone survey of 2,691 Americans by the Pew Research Center in Washington, 86 percent of respondents said a single parent and child constitute a family. Four out of 5 respondents said an unmarried man and woman with a child also were a family, and 63 percent said a gay or lesbian couple raising a youngster could be described the same way. The findings come with a “mix of unease and acceptance” as respondents were evenly split as to whether the new family units were good, bad or didn’t make a difference for society, the authors of the report said. Young adults, non-religious people, liberals and blacks, were more likely to be accepting of the new arrangements than their counterparts.
Prime U.S. Mortgage Foreclosures Rise to Record. Foreclosures on prime fixed-rate mortgages in the U.S. jumped to a record in the third quarter as unemployment strained household budgets of the most creditworthy borrowers. The inventory of homes in foreclosure financed by prime fixed-rate loans rose to 2.45 percent from 2.36 percent in the previous three months, the Mortgage Bankers Association said in a report today. New foreclosures rose to 0.93 percent from 0.71 percent. Both numbers were the highest in the 12 years since the Washington-based trade group started tracking the categories.
Wall Street Journal:
The Deficit Dilemma and Obama's Budget. Much of the projected doubling of the national debt between now and 2020 reflects the spending and tax proposals in the president's fiscal plan this year.
China Protests U.S. Green-Energy Probe. A Chinese trade organization Wednesday said a U.S. government investigation into subsidies China provides for its renewable energy companies was baseless and would hurt China-U.S. cooperation. The China Chamber of International Commerce, in a letter to U.S. Trade Representative Ron Kirk dated Nov. 12, said Washington shouldn't ignore the huge potential offered by new energy cooperation and should change its stance "before this issue further jeopardizes the U.S.-China trade relations."
Rangel Censure is Recommended. The House ethics committee was urged Thursday to give Rep. Charles Rangel the most severe punishment short of expulsion for 11 violations in a case that undercut Democrats' aim to run the cleanest Congress in history.
Joining the ObamaCare Suit. The historic state lawsuit against ObamaCare is moving through the federal courts, with 20 states so far on board the case led by Florida Attorney General Bill McCollum and sure to be continued by his successor, Pam Bondi. Newly elected Governors and AGs now have an opportunity to join this suit and underscore its importance to the future of liberty and our federal system of government.
Outraged Yet? What if Fed Buys Munis? California’s delay of a $10 billion municipal bond sale has only fueled existing chatter on trading floors that the Federal Reserve would take the extraordinary step of buying these securities just as it has with Treasuries. Chairman Ben Bernanke would pursue this unprecedented route, if he thought necessary, even after the vocal criticism he’s received for his second round of quantitative easing, they said. “Given the recent bond offering by California appears to have been given the cold shoulder by the public, might they turn to the Fed?” asks Art Cashin, director of NYSE floor operations at UBS Financial Services, in his widely-read morning note to clients.
The Best Indicator of Consumer Spending is TV News. A new paper from the Swiss Economic Institute found that TV sentiment predicts consumer spending patterns better than the UMich consumer sentiment index.
The Street.com:
GM IPO Bittersweet for "Car Czar" Rattner. General Motors(GM_) initial public offering on Thursday should be a triumphant moment for former "car czar" Steven Rattner, though he may be a bit distracted with other matters at the moment. Rattner, who left a job as a reporter for The New York Times(NYT_), to become a media industry dealmaker for Morgan Stanley(MS_) and Lazard(LAZ_) before starting a private equity firm called Quadrangle Group, was also hit with two lawsuits by New York State Attorney General and Governor-Elect Andrew Cuomo on Thursday. As if that weren't enough for one day, he has also settled a related case with the Securities and Exchange Commission, agreeing to pay $6.2 million and to agreeing to refrain from "associating with any investment adviser or broker-dealer for at least two years."
New York Times:
Beijing's Focus on Food Prices Ignores Broader Inflation Risk. China took steps Wednesday to control rising prices at the most basic consumer level. But Beijing faces a severe challenge in preventing higher global commodity prices from igniting broader inflation that could threaten China’s streak of powerful economic growth. In terms of economic diplomacy, the measures announced Wednesday were almost precisely the opposite of the steps the Obama administration and many Western economists have been urging Beijing to take. China’s broadly measured money supply has surged in the last two years, soaring 54 percent as its central bank has supported the export economy by intervening in currency markets to keep the renminbi artificially low. Chinese and Western economists worry that the Chinese price index may underestimate inflation separate from food and energy. The Chinese index has longstanding methodological problems — like measuring apartment rents but not the cost of buying and living in an apartment, which has soared in recent years.
This is big. This is FiOS + Google(GOOG) TV Ads. Today we've strengthened the reach of the Google TV Ads platform even further by signing a partnership with Verizon FiOS TV, one of the fastest growing television providers with the largest fiber-optic network in the US. By adding over 50 networks on Verizon FiOS TV across 3.3 million homes, we can offer you growing access to the audiences you want to reach on television. By early 2011, advertisers will be able to reach 35 million households, or almost one-third of all US cable and satellite homes through Google TV Ads. Combine this reach with our digital buying platform, and you have one powerful solution that can deliver results.
ProPublica:
SEC Investigating Citigroup(C) Mortgage Deal. The Securities and Exchange Commission is investigating Citigroup's role in a $1 billion deal that the bank created in the run-up to the financial crisis. The agency is looking at whether Citi improperly pushed an independent manager to put specific assets into the deal, according to people familiar with the probe.
Politico:
Soros: Obama Shouldn't Compromise. Meeting with major Democratic donors in Washington this week, George Soros urged them to pressure the Obama administration to focus on liberal policy priorities including climate change and immigration reform, which are considered non-starters with Republicans set to assume control of the House. During a private session Wednesday on the sidelines of a conference of major Democratic donors organized by the Democracy Alliance, Soros reiterated the position that wealthy liberals should focus their giving on groups that will push President Barack Obama and congressional Democrats on liberal legislative initiatives, rather than groups supporting individual candidates, according to a source in the meeting.
Malaysian Man Hacked into Fed Bank - US Prosecutor. A Malaysian man was charged with hacking into the computer network of the U.S. Federal Reserve Bank and possessing more than 400,000 stolen credit cards and debit cards, U.S. prosecutors said on Thursday.
British banks have £140 billion exposure to Ireland's economic crisis. George Osborne has pledged to help Ireland after new figures showed British banks have a £140 billion exposure to the beleaguered country. The new figures - from the Bank for International Settlements - disclose that Britain faces the biggest potential losses from a meltdown in the Irish economy. This country’s banks have lent more than those from any other country to the Irish government, consumers and businesses. RBS, the largely-nationalised bank, is thought to have the biggest exposure with more than £50 billion of outstanding loans. Amid the growing fears that an Irish collapse could have a serious knock-on effect in this country, Mr Osborne said that the Treasury was considering all options for financial aid.
Irish Independent:
Last-Ditch Bid to Fund Banks and Avoid Bailout. The Irish Government has drawn up a last-ditch plan to avoid being forced to accept a bank bailout. It wants to borrow money for the banks -- supported by a guarantee from the European Central Bank. That would mean technically avoiding a bailout and the politically damaging perception of a loss of sovereignty. However, it would also risk alienating EU leaders who are convinced that the Government should take the bailout and get on with restoring the public finances. And regardless of what sort of 'bailout' eventually emerges -- there will be strict budgetary conditions attached -- the Government will have to enforce a draconian Budget next month.
DigiTimes:
Tablets Will Be A 100 Million Unit Market By 2013 - Analyst Report. Although Apple's iPad is currently still not able to fully replace notebooks in the mobile industry, the product has already impacted netbook shipments seriously and may even achieve shipment volumes higher than those of netbooks in the fourth quarter of 2010, according to Digitimes Research senior analyst Joanne Chien. Smartphones, tablet PCs and notebooks will all become the mainstream terminal devices in the mobile Internet market in the future with smartphone shipments having a chance to reach 800 million units in 2013, up more than double from 2010, with tablet PCs at 100 million units and notebooks 300 million units. As smartphone shipments will reach 440 million units in 2011 and continue to see surging growth over the next few years, Chien believes tablet PCs will benefit from the opportunity as consumers will want to enhance their experience from smartphones and decide to choose a tablet PC.
Initial Jobless Claims for last week are estimated to rise to 441K versus 435K the prior week.
Continuing Claims are estimated to fall to 4295K versus 4301K prior.
10:00 am EST
Leading Indicators for October are estimated to rise +.5% versus a +.3% gain in September.
Philly Fed for November is estimated to rise to 5.0 versus 1.0 in October.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Warsh speaking, Fed's Pianalto speaking, BofA Merrill Credit Conference, 3Q Mortgage Delinquencies, Deutsche Bank Media/Telecom Conference, Citigroup Credit Conference, (DNR) analyst meeting and the (SPWRA) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 92.39 bps -3.54%
European Financial Sector CDS Index 101.67 bps -4.87%
Western Europe Sovereign Debt CDS Index 164.17 bps +.92%
Emerging Market CDS Index 223.41 bps -.09%
2-Year Swap Spread 18.0 -2 bps
TED Spread 15.0 unch.
Economic Gauges:
3-Month T-Bill Yield .14% +1 bp
Yield Curve 238.0 +4 bps
China Import Iron Ore Spot $163.20/Metric Tonne +.06%
Citi US Economic Surprise Index +24.10 -5.1 points
10-Year TIPS Spread 2.08% +5 bps
Overseas Futures:
Nikkei Futures: Indicating +39 open in Japan
DAX Futures: Indicating +10 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical, Retail 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 slightly higher despite losses in Asia overnight, poor US housing data, rising US municipal debt fears and ongoing euro sovereign debt concerns. On the positive side, Restaurant, Oil Service and Coal shares are especially strong, rising more than 1.0%. Cyclical and small-cap shares are outperforming. (IYR) has traded well throughout the day. The Portugal sovereign cds is dropping -3.15% to 417.76 bps. Lumber is rising +.93%. Oil is falling -2% despite a rise in the euro and "bullish" US inventory data. The decline in the euro financial sector cds index is also a positive. On the negative side, Bank, Disk Drive, Computer and Alt Energy shares are under pressure, falling more than -1.0%. (XLF) has been heavy throughout the day. Moreover, the Shanghai Composite has declined -9% over the last 5 days and is very close to testing its 200-day. The Illinois and California municipal cds are up another +.67% and +.40%, respectively. The Greece sovereign cds is jumping +2.67% to 978.04 bps. The UK sovereign cds is soaring +11.8% today to 61.17 bps on talk of their help with the Ireland bailout. (NTAP) lowered 3Q guidance over the last hour, which is beginning to pressure the tech sector. The recent rise in mortgage rates, despite QE2, is a large negative. Right now, the market still believes that the tax cuts will be extended for everyone, however if we get well into December without a clear resolution, a significant adverse reaction by the markets should be expected. I expect US stocks to trade modestly 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.
