North American Investment Grade CDS Index 88.21 bps -.35%
European Financial Sector CDS Index 146.43 bps +7.08%
Western Europe Sovereign Debt CDS Index 185.50 bps +3.34%
Emerging Market CDS Index 212.96 bps -.47%
2-Year Swap Spread 23.0 +4 bps
TED Spread 19.0 +2 bps
Economic Gauges:
3-Month T-Bill Yield .11% -2 bps
Yield Curve 268.0 +9 bps
China Import Iron Ore Spot $165.70/Metric Tonne +.18%
Citi US Economic Surprise Index +1.70 +15.7 points
10-Year TIPS Spread 2.18% +3 bps
Overseas Futures:
Nikkei Futures: Indicating +50 open in Japan
DAX Futures: Indicating +7 open in Germany
Portfolio:
Higher: On gains in my Biotech, Tech, Ag and Medical long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades higher despite recent equity gains, rising eurozone debt angst, China inflation worries, US tax policy uncertainty and US municipal debt concerns. On the positive side, Defense, Coal, Alt Energy, Steel, Software, Disk Drive, Networking, Telecom, Medical Equipment, Biotech, Hospital, HMO, Construction, Homebuilding, REIT and Education shares are especially strong, rising more than 1.0%. Cyclicals and small-caps are outperforming again. (XLF)/(IYR) have traded well throughout the day. Lumber is rising +.32% and copper is gaining +.59%. On the negative side, Gaming, Semi and Oil Tanker shares are slightly lower on the day. The Italy sovereign cds is climbing +6.45% to 219.14 bps and the Portugal sovereign cds is rising +4.25% to 468.25 bps. The European Financial Sector CDS Index continues to trend higher(still below May/June levels) and the US Muni CDS Index is rising another +5.58% to 219.08 bps. Despite a number of potential negative equity catalysts, the S&P 500 has broken out convincingly to a new 52-week high, which is a major positive and bodes well for further near-term gains into year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, diminishing financial sector pessimism, buyout speculation, technical buying, investment manager performance angst and seasonal strength.
Consumer Spirits Lift as Economic Recovery Accelerates. Confidence among U.S. consumers increased in December to a six-month high, coinciding with stronger holiday sales that show the economy is gathering speed. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 74.2 from 71.6 at the end of November. Economists projected a December sentiment reading of 72.5, according to the median estimate in a Bloomberg News survey. The survey’s measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, increased to 85.7, the highest since January 2008, from 82.1 a month earlier. Consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to a six-month high of 66.8 from 64.8. Higher stock prices this month and signs tax rates will be kept from increasing may prop up Americans’ spirits. Since the end of November through yesterday, the S&P 500 gained 4.4 percent. President Barack Obama this week agreed with Republicans to prolong income-tax cuts put in place by former President George W. Bush. The National Retail Federation forecast November to December sales will rise by 2.3 percent from the same time in 2009, making it the best holiday shopping season in four years. The ICSC said it expects December sales to rise as much as 3.5 percent compared with last year. The Michigan survey showed that buying plans for household durable goods rose to the highest level since January 2008. The proportion of Americans saying they were hearing of job gains rose to the highest level since 1983.
China Increases Banks' Reserve Ratios to Cool Prices. China ordered lenders to park more money with the central bank for the third time in five weeks to counter the threat from inflation after November’s lending and trade surplus topped analysts’ estimates. Reserve requirements will increase 50 basis points starting Dec. 20, the People’s Bank of China said on its website today. Policy makers refrained from adding to October’s interest- rate increase, ahead of data tomorrow that may show inflation accelerated to the fastest pace since July 2008. An interest-rate increase would be “a more potent weapon” and is likely this weekend, said Shen Jianguang, a Hong Kong- based economist at Mizuho Securities Asia Ltd.
Junk Bucks Slump With Tightest Spread Since '08: Credit Markets. Junk bonds are becoming a haven for fixed-income investors roiled by mounting losses in government, investment-grade corporate and municipal debt. Gains of 0.8 percent this month on high-yield, high-risk bonds compare with losses of 1.9 percent for Treasuries, 1.5 percent on high-grade company notes and 1.4 percent on state and local debt, according to Bank of America Merrill Lynch index data. Relative yields on junk bonds versus higher-rated corporates narrowed to 388 basis points, or 3.88 percentage points, a level that hasn’t been breached in three years.
Oil Drops as China Orders Banks to Increase Reserves on Inflation Concern. Crude oil fell after China ordered lenders to park more money with the central bank for the third time in five weeks to counter inflation, potentially slowing economic growth and fuel demand. Prices slipped as much as 1.4 percent after the People’s Bank of China said reserve requirements will increase 50 basis points starting Dec. 20. “The increase in reserve requirements is probably the first shot across the bow,” said Phil Flynn, a Chicago-based analyst and trader with investment adviser PFGBest. “The market is concerned that the Chinese will follow this move with an interest-rate increase over the weekend.”
UN Climate Talks Risk 'Hissy Fit' as Richer, Poorer Nations Remain at Odds. Envoys at United Nations climate talks were locked in negotiations during the final day of a two- week conference as 193 nations remained divided about how to curb global warming. “There’s a real danger that if we don’t get a successful outcome that this becomes a zombie process,”Chris Huhne, Britain’s Cabinet minister in charge of energy, said today in Cancun, Mexico. “There is potentially nothing to stop one or more countries from having a hissy fit and throwing all of their toys out of the pram.”
Occidental(OXY) to Buy U.S. Fields, Sell Argentine Wells. Occidental Petroleum Corp., the U.S. energy company that’s selling its Argentine wells to China’s largest refiner, agreed to buy oil and natural-gas fields in Texas and North Dakota for $3.2 billion.
Boehner Pledges 5% House Budget Cut as a Start on Deficit. Incoming U.S. House Speaker John Boehner, saying reduced government spending begins at home, promised to seek a 5 percent cut in the chamber’s legislative budget as one of the first steps when Republicans take control next year. Republicans, who captured the House from Democrats in the November election with a net gain of 63 seats, campaigned on a pledge to decrease government spending to 2008 levels. That would require Congress to find $100 billion in cuts next year.
Budget Gap in U.S. Widened More Than Forecast Last Month as Spending Rose. The U.S. government posted a wider budget deficit in November as spending swelled compared with the same time last year when a shift in the timing of payments for programs like Medicare and Social Security damped outlays. The deficit was $150.4 billion last month, exceeding the median estimate of economists surveyed by Bloomberg News, compared with $120.3 billion in November 2009, according to the Treasury Department’s budget statement released in Washington. For the first two months of the 2011 fiscal year, the shortfall narrowed to $290.8 billion from $296.7 billion in the same period last year as revenue improved.
China Overbuilding to 'Hit a Wall': Chanos. The overdependence on new real estate in China, when the demand isn't there, will cause the nation to eventually "hit a wall," hedge fund manager James Chanos told CNBC Friday. “Construction is 60-plus percent of GDP, compared to exports of 5,” said Chanos, who is the founder and president of Kynikos Associates. “The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35 percent. It’s all real estate,” he said. Chanos said that steel, iron ore, cement and other materials needed for construction will be "under pressure." China has built new cities that are now essentially empty, he added. Despite the overbuilding, said Chanos, construction continues at a good clip, with 12 million to 15 million residential units this year. The units, priced similar to those for US residents, are intended for Chinese who earn about $3,500 annually and are in the bottom 20 percent of wage earners. Ironically, many of the Chinese who've moved to cities from the country are construction workers, he noted. “When construction is 60 percent of your economy, and you are building lots of things that people don’t need, the state may let this get out of control,” he said. “It’s hard to manage this type of bubble.” Chanos predicted that America would fare better, should the China bubble burst, because the US doesn’t export as heavily to China as do Europe, other countries in Asia and Latin America.
Ford(F), Honda Win Loyalty Survey. More than 60 percent of Ford owners say they'll stick with the brand for their next cars, according to a J.D. Power and Associates study revealed Thursday. It was a milestone for Dearborn-based Ford Motor Co., whose Ford brand tied for first place with Honda Motor Co.'s Honda brand as the top two lines in customer loyalty.
Switched:
See Photos of WikiLeaks' James Bond-Like Data Headquarters. If you thought Julian Assange and his team of WikiLeakers were wreaking global havoc from some decrepit, dank basement in northern Europe, guess again. The Daily Mail recently ran some photos of the Pionen data center -- a cave carved out of granite under Stockholm's Vita Berg Park, where WikiLeaks reportedly houses all of its files. And, as you can see, the photos are pretty unbelievable.
Reuters:
Investors Buy Stocks, Dump Debt on US Tax Deal - EPFR. A tax deal between the White House and opposition Republican lawmakers pushed investors to load up on equities while nearly eschewing bonds in the week ended Dec. 8, fund-tracker EPFR Global said on Friday. The compromise deal, which still awaits Congressional approval, would extend all Bush-era tax cuts for two years. For the week, investors put a collective $13.71 billion net new cash into equity funds, with $3.1 billion going into emerging markets. Bond funds narrowly avoided a third week of outflows, with a net $146 million of fresh cash. The tax deal helped global equity funds to take in "just shy of $2 billion, making it the best week for this fund group since late January 2007." Money market funds hit a 22-week high of $32.5 billion. "This week's tepid bond fund inflows highlight the recent shift towards equities," said Brad Durham, global managing director at EPFR.
Insider Trading Arrests Coming Soon - CNBC.U.S. authorities could announce a series of arrests in the next phase of a long-running insider trading investigation as early as next week, CNBC said in a report on Friday.
Burma 'Building Nuclear Sites'. Witnesses in Burma have seen missile and nuclear sites being built in remote locations with support from North Korea, according to the latest US cables released by WikiLeaks.
Corriere della Sera:
Germany is pro euro "head to toe" and won't relinquish sovereignty over its debt management to support the sale of euro-region bonds, Foreign Minister Guido Westerwelle said. The possibility of euro-region countries pooling their national debt to collectively share risk is "unacceptable," Westerwelle said. Such a plan wouldn't give more profligate countries "an incentive to maintain discipline" if they knew that others were guaranteeing their borrowing, he said.
Xinhua:
China's export growth may slow next year as the world economy is projected to weaken, reducing the demand for Chinese goods, citing researcher Zhang Yansheng at the National Development and Reform Commission. The yuan is also "under pressure to appreciate," reducing profits for exporters while inflation may increase production costs, citing researcher Li Jian at the Ministry of Commerce.
Euro-Area Bond Stokes Tempers as Flashpoint for Debt Markets: Euro Credit. A proposal to sell joint euro-region debt has emerged as a new flashpoint among European leaders running out of options to stabilize bond markets. With a European Union summit set for next week in Brussels, officials from Italy, Luxembourg, Belgium and Greece said the proposal should be explored, prompting resistance from Germany, France and Austria. Economists and analysts from Goldman Sachs Group Inc., Morgan Stanley and HSBC Holdings Plc said it may end the euro-region debt crisis. The plan would establish a European Debt Agency to sell bonds to finance as much as 50 percent of EU member borrowing, rising to as much as 100 percent for countries unable to lure investors, and take pressure off the European Central Bank to prop up markets. Opponents say such bonds would burden stronger countries with higher borrowing costs.
China Credit 'Bubble' Set for Bust on Trade Row, Blackhorse's Duncan Says. China’s economy is history’s biggest bubble and may be headed for collapse, according to Richard Duncan, chief economist at Blackhorse Asset Management Pte. who predicted a credit boom would trigger a global recession. A more than 50 percent surge in China’s money supply since 2008 helped fuel economic growth in excess of 9 percent per year, even as trading partners sank into recession. The expansion also saddled the country with factories that produce three times more goods than can be bought by China’s workers, 80 percent of whom make less than $5 a day, said Duncan. “China has the greatest economic bubble in history,” said Duncan, author of “The Dollar Crisis” first published in 2003. “There’s a real risk it’s going to collapse in a Great Depression-style scenario.” “It’s hugely hypocritical for the Chinese to say anything about the U.S. doing quantitative easing because they’re the kings of quantitative easing,” Duncan said in a phone interview this week from Bangkok. Premier Wen Jiabao’s government has been creating about $250 billion worth of yuan each year “out of thin air,” Duncan said. To keep its currency from appreciating, the People’s Bank of China has been printing yuan to offset the dollars flowing in from a trade surplus that expanded to $27.2 billion in October, the most since July.
Hedge Funds, Institutions to Increase Commodity Investments, Barclays Says. About 76 percent of the respondents surveyed at a Barclays conference yesterday in New York predicted a bigger inflow into direct commodity investments than in 2010. New investments this year were $50 billion, the London-based bank said.
Fink Builds Wall Street's Brain as BlackRock(BLK) Marks Rise of Asset Managers. As chairman and chief executive officer of BlackRock Inc., Larry Fink controls more money than Germany has gross domestic product. BlackRock is the world’s biggest asset-management firm, a $3.45 trillion powerhouse that is Wall Street’s largest trading partner, set to pay investment banks $1 billion in fees this year. It manages $1.4 trillion for public pension funds in states including New York, New Jersey and California, and invests $240 billion for central banks and sovereign wealth funds such as the Abu Dhabi Investment Authority. The company serves as the U.S. Treasury Department’s go-to source for private-sector financial expertise and managed at least $150 billion in toxic assets on behalf of U.S. taxpayers after the 2008 bailouts of American International Group Inc. and Bear Stearns Cos. While running the company is a team effort, Fink, 58, is BlackRock’s brain, and BlackRock, increasingly, is Wall Street’s, Bloomberg Businessweek reports in its Dec. 13 edition.
Bernanke Pledges Cooperation on Increasing Transparency, Issa Aide Says. Federal Reserve Chairman Ben S. Bernanke today pledged to “work cooperatively” with the new head of a House panel who’s seeking to increase disclosure of the central bank’s actions, the lawmaker’s spokesman said. Representative Darrell Issa made it “very clear” in a private meeting with Bernanke that the lawmaker will pursue “an overall agenda intent on making government as transparent as possible,” said Kurt Bardella, spokesman for the California Republican who’s set to chair the House Oversight Committee in January. “Chairman Bernanke certainly signaled that he would be a willing partner in that effort.”
Community Health(CYH) Makes $7.3 Billion Bid for Tenet(THC). made an unsolicited offer to buy Community Health Systems Inc.Tenet Healthcare Corp. for $7.3 billion in a bid to create the largest hospital operator in the U.S., with 176 hospitals in 30 states. Tenet rejected the offer Dec. 6 as not “remotely fair value” and Community Health has renewed the bid with Tenet’s board, Community Health, based in Franklin, Tennessee, said today in a statement.
Nobel No-Shows for Award to Dissident Liu Reveal Rising Chinese Influence. Nineteen countries will be absent from today’s ceremony bestowing the Nobel Peace Prize on Chinese dissident Liu Xiaobo in the wake of his government’s campaign to portray the award as a western effort to undermine its authority. Those absent will include countries with unelected rulers such as Cuba and Saudi Arabia, Chinese neighbors Kazakhstan and Vietnam, and U.S. allies Colombia and Egypt. Their decision to skip the ceremony in Oslo comes as Chinese Foreign Ministry spokeswoman Jiang Yu derided the award as a “farce” bestowed by “clowns” in comments to reporters in Beijing on Dec. 7.
China's November Inflation May Be 5.1%, Two Newspapers Say. China’s inflation may have accelerated to 5.1 percent in November, the fastest pace since July 2008, according to two Chinese newspaper reports today ahead of the release of the data tomorrow. The reported pace would top the median 4.7 percent forecast in a Bloomberg News survey of economists and bolster the case for the central bank to raise interest rates.
Wall Street Journal:
Markets Defy Fed's Bond-Buying Push. The Federal Reserve's decision to spur the economy with a $600 billion round of bond buying was among the most controversial in its history. Fed officials quarreled over whether to proceed. At worst, some members argued, such a move risked whipping inflation to dangerous levels. Six weeks later, the bond program looks more like a water pistol than a cannon. The purchases of government bonds are meant to drive down long-term interest rates, which did happen in the lead-up to the Nov. 3 move. But since then, long-term rates are up sharply.
CFTC Hammers Out Corporate Exemption for Derivatives Rule.Federal regulators on Thursday proposed rules for spelling out how companies like Shell Energy North America and Caterpillar Inc. can avoid potentially costly new derivatives rules. The proposal by the Commodity Futures Trading Commission was approved in a 3-2 vote and will now be issued for public comment. A second vote is needed to implement it.
Companies Cling to Cash. Corporate America's cash pile has hit its highest level in half a century. Rather than pouring their money into building plants or hiring workers, nonfinancial companies in the U.S. were sitting on $1.93 trillion in cash and other liquid assets at the end of September, up from $1.8 trillion at the end of June, the Federal Reserve said Thursday. Cash accounted for 7.4% of the companies' total assets—the largest share since 1959.
The Puzzling Assault on For-Profit Colleges. President Obama's commitment to serve nontraditional students—low income, working, mid-career—is clear. He demonstrated that again this week by visiting a community college in North Carolina. The reason, in his words: "Folks who have never gone to college have an unemployment rate nearly double of those who have gone to college." That's why it's so disappointing that the Department of Education is pursuing regulations that threaten to cripple or close down for-profit colleges and career schools that provide advancement opportunities for millions of poor and minority students.
Once-Cautious Carlyle Gets in Game. Four years and a private-equity-boom ago, Carlyle Group LP co-founder William Conway sounded a cautionary note about buyout-market froth, as competitors pursued what proved to be market-top deals. Not so now. As other private-equity players fret about high takeover prices and a weak economy, Carlyle is in the midst of one of the biggest deal splurges in its 23-year history, a spree driven in part by an unusually bullish outlook for the U.S. and parts of the global economy. "We think the economy is stronger than most [people do], so we're putting more money to work," said Mr. Conway.
Video Game Sales Surge Once More in November. "Black Ops" brought some black ink for the video game industry in November. Retail software sales posted impressive growth over 2009 numbers, marking the first time the industry has posted back-to-back gains this year.
Business Insider:
Friday's Front Page Story: "What to Do When the Shells Hit Seoul". The US press mainly focuses on the fragile Korean situation after escalation, but don't presume things have calmed down, just because you may not have read about anything for a couple of days. The Korean papers are filled Friday with talk of war, including this column in the Chosun Ilbo suggesting that war is a real possibility, and this full page feature in the Joong Ang Daily titled What To Do When The Shells Hit Seoul. Note the use of the word "when" not "if." What does one do? Well, it seems that Seoul is pretty prepared:
Politico:
Sarah Palin-Friendly Sites Attacked. Websites supportive of former Alaska GOP Gov. Sarah Palin came under cyberattack Thursday, a day after Palin’s own site was briefly taken down by hackers, POLITICO has learned.
Obama 'Confident' Amid Dem Tax Revolt. The House Democratic Caucus voted Thursday to oppose President Barack Obama’s tax plan, throwing into flux weeks of negotiations on an issue that has turned many congressional Democrats against the White House. But in an interview with NPR Thursday, Obama said he still expected a final agreement that would continue the Bush tax cuts beyond their scheduled Dec. 31 expiration date, despite the protests in the House.
'Don't Ask' Repeal Fails in Senate. A key legislative opportunity to repeal the military’s ban on gays in uniform, which President Barack Obama vowed would be dismantled “on my watch,” fell victim to partisan wrangling and the time pressures of the lame-duck session Thursday afternoon.
USA Today:
Gas Prices on Track for Unseasonable Spike. Motorists, brace yourselves for a lump of coal this holiday season: higher-priced gasoline. Nationwide, a gallon of regular unleaded gas averaged $2.975 on Thursday and more than $3 a gallon in 20 states. That's up nearly 10 cents the past week and 34 cents higher than December 2009, AAA spokesman Troy Green says. Benchmark crude oil opens today at $88.37 a barrel. If crude crosses $90 for the first time since 2008 and continues to rise, as many industry experts forecast, the average price of regular unleaded could hit $3.15 or higher by year's end. $3 a gallon gas will pinch some consumers. "If they have to pay more for gas, they'll have less to spend on other things," Green says.
Stock Forecasters Predict Market Gains in 2011. An early peek at Wall Street stock market forecasts for 2011 points to more upside for U.S. stocks, with strategists at major firms predicting gains ranging from 5% to 15%.
Reuters:
PIMCO Ups US Economic Growth Forecast On Tax Deal. Pacific Investment Management Co, which runs the world's biggest bond fund, is revising its growth forecast for the United States next year after President Barack Obama's tax-cut compromise, Chief Executive Mohamed El-Erian told Reuters late Thursday. PIMCO sees the economy growing 3 percent to 3.5 percent in the fourth quarter of 2011 from the same period of this year. That compares with its previous estimate for 2 percent to 2.5 percent growth. "We revised this week our outlook for U.S. growth in 2011 taking into account Monday's announcement on additional fiscal stimulus measures," El-Erian said in an interview.
Beckman Coulter(BEC) Puts Itself Up For Sale. Beckman Coulter Inc, maker of diagnostic instruments used in clinical testing, has put itself up for sale and could fetch more than $5 billion, the Wall Street Journal reported, citing people familiar with the matter.
U.S. Fed's Balance Sheet Grows to Record Size. The U.S. Federal Reserve's balance sheet expanded for a sixth straight week, bolstered to a record by purchases of Treasuries, Fed data released on Thursday showed.The balance sheet, a broad gauge of Fed lending to the financial system, rose to $2.364 trillion in the week ended Dec. 8 from $2.329 trillion the previous week. Last month, the U.S. central bank began a second bout of quantitative easing, known as QE2. The Fed expects to buy about $600 billion in U.S. government debt purchases over an eight-month period in an effort to stimulate the economy.
Coffee Costs Hit Green Mountain's(GMCR) Outlook, Shares Sink. Green Mountain Coffee Roasters Inc gave a weak first-quarter profit outlook due to higher marketing costs and an expected volatility in coffee costs -- becoming the latest coffee company to take a hit due to soaring prices. Shares of the company fell 18 percent after the bell.
Goldman(GS) CDS Trading Activities Under Fire. Goldman Sachs ’ trading activities in the credit insurance market in 2007 have come under attack from a US senator after e-mails revealed a senior trader urged colleagues to “kill” some investors’ positions. Mr Levin said that in May 2007, Goldman adopted a “short squeeze strategy” to drive down the price of credit default swaps on troubled mortgage-backed securities. Mr Levin alleged the move, which Goldman denies, would have enabled the bank “to purchase the CDSs for itself at artificially low prices”.
Evening Recommendations Citigroup:
Reiterated Buy on (CIEN), target $24.
Wells Fargo:
Rated (PLX), (GILD) and (VRTX) Outperform.
Night Trading
Asian equity indices are -.75% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 105.50 -1.0 basis point.
Asia Pacific Sovereign CDS Index 104.75 -1.25 basis points.
The Trade Deficit for October is estimated at -$43.8B versus -$44.0B in September.
The Import Price Index for November is estimated to rise +.8% versus a +.9% gain in October.
9:55 am EST
Preliminary Univ. of Mich. Consumer Confidence for December is estimated to rise to 72.5 versus 71.6 in November.
2:00 pm EST
The Monthly Budget Deficit for November is estimated at -$138.0B versus -$120.3B in October.
Upcoming Splits
(ROL) 3-for-2
(RES) 3-for-2
Other Potential Market Movers
The (HSC) analyst meeting, (CVVT) analyst day, JPMorgan Ag Conference and the Goldman Sachs Auto Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker 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 88.52 bps -1.64%
European Financial Sector CDS Index 139.61 bps +5.01%
Western Europe Sovereign Debt CDS Index 179.50 bps +.75%
Emerging Market CDS Index 214.88 bps +1.33%
2-Year Swap Spread 19.0 -1 bp
TED Spread 17.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% -1 bp
Yield Curve 259.0 -4 bps
China Import Iron Ore Spot $165.40/Metric Tonne +.24%
Citi US Economic Surprise Index -14.0 +.1 point
10-Year TIPS Spread 2.15% -5 bps
Overseas Futures:
Nikkei Futures: Indicating -10 open in Japan
DAX Futures: Indicating +16 open in Germany
Portfolio:
Slightly Higher: On gains in my Biotech and Medical long positions
Disclosed Trades: Covered all of my (IWM), (QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite recent equity gains, rising eurozone debt angst, China inflation worries, US tax policy uncertainty and US municipal debt concerns. On the positive side, Road & Rail, Bank, Telecom, Networking and Coal shares are especially strong, rising more than 1.0%. Cyclicals and small-caps are outperforming. (XLF) has traded very well throughout the day. Lumber is jumping +3.65% and is breaking above its 50-day moving average convincingly. The 10-year yield is falling -6 bps to 3.21%.On the negative side, Education, Restaurant and Homebuilding shares are under pressure, falling more than 1.0%. (IYR) has been heavy throughout the day and tech stocks are underperforming. The Greece sovereign cds is jumping +3.48% to 956.47 bps, the Spain sovereign cds is surging +6.45% to 324.19 bps, the Italy sovereign cds is climbing +6.56% to 206.17 bps, the Portugal sovereign cds is rising +4.2% to 450.03 bps and the Belgium sovereign cds is gaining +3.24% to 201.66 bps. The European Financial Sector CDS Index continues to trend higher and the US Muni CDS Index is rising another +4.01% to 207.50 bps. Some key investor sentiment gauges remain a bit too bullish. The AAII % Bulls rose to 53.05 this week, while the % Bears fell to 22.56. Despite a number of potential negative equity catalysts, the bears remain unable to gain any traction and stocks continue to consolidate recent gains in a healthy fashion. I expect US stocks to trade mixed-to-higher into the close from current levels on falling long-term rates, short-covering, less financial sector pessimism and seasonal strength.
