North American Investment Grade CDS Index 86.24 bps +.29%
European Financial Sector CDS Index 140.12 bps +5.85%
Western Europe Sovereign Debt CDS Index 181.0 bps -1.72%
Emerging Market CDS Index 217.68 bps +3.63%
2-Year Swap Spread 25.0 +3 bps
TED Spread 17.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 285.0 +2 bps
China Import Iron Ore Spot $168.50/Metric Tonne +.60%
Citi US Economic Surprise Index +14.3 +3.3 points
10-Year TIPS Spread 2.32% +10 bps
Overseas Futures:
Nikkei Futures: Indicating +45 open in Japan
DAX Futures: Indicating -17 open in Germany
Portfolio:
Slightly Lower: On losses in my Tech long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades lower despite mostly positive economic data and less tax policy uncertainty. On the positive side, Hospital, Drug and Biotech shares are higher on the day. Healthcare-related stocks continue to trade very well. The Italy sovereign cds is dropping -3.03% to 198.13 bps and the Portugal sovereign cds is falling -3.25% to 435.92 bps. Gold is falling -.82%. On the negative side, Airline, Gaming, REIT, Homebuilding, Construction, Wireless, Disk Drive, Semi, Computer, Steel, Oil Service, Coal and Utility shares are under meaningful pressure, falling more than 1.0%. (XLF)/(IYR) have underperformed again throughout the day. The Greece sovereign cds is climbing +2.35% to 951.74 bps and the China sovereign cds is jumping 3.33% to 69.08 bps. The jumps in the Emerging Markets CDS Index and the Euro Financial Sector CDS Index are big negatives. As well, the Illinois Municipal CDS continues to move higher, rising another +2.11% to 315.0 bps. Copper is dropping -2.54%. Short/intermediate-term gauges of investor sentiment remain overly bullish, which is a big negative. The 10-year yield continues to rise too much, gaining another +5 bps to 3.52%. Late-day weakness has become common of late, which is also a negative. The Hang Seng Index, which fell -2% last night, appears to be rolling over again after another failure at its 50-day. Moreover, Spain's IBEX 35 is displaying meaningful technical weakness. The major averages are masking more material weakness in some key stocks and sectors. However, so far the bears have been unable to gain any significant traction after another sharp reversal lower in stocks. I expect US stocks to trade modestly lower into the close from current levels on China inflation worries, profit-taking, more shorting, higher long-term rates, technical selling and ongoing eurozone debt fears.
Spain's Debt Rating May Be Cut by Moody's Amid Struggle to Limit Contagion. Spain’s credit rating may be cut from Aa1, Moody’s Investors Service said, as the government prepares its final bond sale of the year tomorrow amid concern it may follow Greece and Ireland in seeking a bailout. Spain has to raise 170 billion euros ($226 billion) next year, while refinancing needs for its regions total 30 billion euros and for banks around 90 billion euros, Moody’s estimates. “Spain’s substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress,” Kathrin Muehlbronner, an analyst at Moody’s, said in a report today. The euro fell and the extra yield that investors demand to hold Spanish 10-year bonds over German bunds widened to as much as 257 basis points after the Moody’s report, less than 30 basis points shy of a euro-era closing record. The spread eased to 250 basis points at 12:30 p.m. in London.
Germany Stiffens Opposition to Bigger Bailout in Crisis Face-Off With ECB. Germany stiffened its opposition to expanding government-financed aid for debt-plagued euro nations, leaving the European Central Bank to shoulder the bulk of the burden of fighting the crisis. With Chancellor Angela Merkel ruling out an increase in the euro area’s 750 billion-euro ($1 trillion) emergency fund, Germany yesterday put the spotlight on the ECB by endorsing a possible boost in its capital. Discord between Merkel and ECB President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker on the eve of a European Union summit evokes the tensions during the first phase of the debt crisis, when Germany held out for more than two months before consenting to a loan package for Greece. “The consequence is a stalemate that leaves us with a familiar sense of déjà vu,” Ken Wattret, chief euro-area economist at BNP Paribas SA in London, said in a note to investors. “Market tensions are likely to resurface, as governments remain very publicly divided on the appropriate way forward.”
Wall Street Pushes for Delay in U.S. Rules to Curb Commodities Speculation. U.S. regulators and lawmakers this week are considering rules aimed at curbing speculation in commodities trading, as Wall Street firms call for delay and companies including Delta Airlines Inc. urge strict limits. The CFTC has received hundreds of comments on how to implement a contentious part of the Dodd-Frank financial overhaul -- limits on the influence of big traders in markets for crude, gasoline heating oil and natural gas. Commissioners have discussed so-called position limits in at least 75 of the more than 400 meetings they’ve held with banks, oil companies, hedge funds and others, according to the agency’s website. “The speculative bubble in oil prices has concrete detrimental consequences for the real economy,” said Richard B. Hirst, general counsel to Delta, in a Dec. 13 letter that encouraged the CFTC to move “aggressively” to limit the number of contracts a single firm can hold. The law gives the CFTC until January to impose restrictions on energy and metals trading, and until April to place a cap on agricultural contracts. Gensler said last week that the agency will consider splitting proposals for position limits between spot month and all other months combined. The agency may move “expeditiously” on the spot month proposal, he said. Companies including Goldman Sachs Group Inc.(GS), Vitol and Cargill Inc. have met with the CFTC about the rules, according to the commission’s website. “If the Commission fails to act in a timely way or fails to adopt strong position limits, markets and consumers will be vulnerable to excessive commodity prices and volatility arising from speculative trading activity,” said William F. Galvin, the chief financial regulator for the state of Massachusetts, in a Dec. 9 letter.
Bearish Illumina(ILMN) Options Volume Rises as Shares Climb to Record. Illumina Inc.’s put-options volume jumped to seven times the four-week average as the maker of DNA analysis equipment rose to a record after the shares more than doubled this year. More than 2,500 puts to sell the stock changed hands, nine times the number of calls to buy, as of 11 a.m. in New York.
The Baltic Dry Index, a measure of commodity-shipping costs, extended its longest losing streak in almost a month on falling rates to hire smaller iron ore and coal transporters. The index declined 22 points, or 1.1%, to 2,047 points today. That's the seventh straight drop and the longest decline since a 17-day run to Nov. 19.
Wal-Mart(WMT) Raising Toy Prices, Squeezing More Out of Holidays.Wal-Mart Stores Inc., the world’s largest retailer, raised prices on hundreds of toys this month, squeezing more out of sales during the biggest shopping period of the year. Wal-Mart managers in the U.S. received instructions to mark up an average of 1,800 types of toys per store, according to a company e-mail dated Nov. 30 obtained by Bloomberg News.
BP(BP) Sued by Obama Administration Over Worst Oil Spill. The Obama administration sued units of BP Plc and four other companies, saying they violated environmental laws in the largest offshore oil spill in U.S. history, according to a court filing. The civil lawsuit, filed today in U.S. District Court in New Orleans, is the first brought by the U.S. over the oil spill caused by the explosion of the Deepwater Horizon rig in April. The Justice Department’s civil investigation is continuing, as is a probe of potential criminal violations.
Goldman Execs to Get $111 Million in 2007, 2009 Bonuses. Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein and his top deputies will collect about $111.3 million in stock next month in a delayed payoff from last year and their record-setting 2007 bonuses. Blankfein, 56, is poised to receive about $24.3 million in January, based on yesterday’s share price, while President Gary D. Cohn, 50, will get about $24 million, company filings show. The payouts, just a portion of the $67.9 million bonus awarded to Blankfein for 2007 and the $66.9 million paid to Cohn, reflect a 24 percent decline in the stock’s value since it was granted at $218.86. Within a year after the bonuses were approved, Goldman Sachs took $10 billion from the U.S. Treasury, converted to a bank and was borrowing as much as $35.4 billion a day from Federal Reserve emergency programs. This year the firm paid $550 million to settle U.S. regulators’ fraud charges related to a mortgage-security the company sold in 2007.
Euro Drops After Moody's Says Spain on Review for Downgrade; Dollar Gains. The dollar rose against most of its major counterparts as a possible downgrade of Spain’s credit rating rekindled concern the euro zone’s financial crisis is spreading, spurring demand for the safety of the U.S. currency. The greenback rose against the euro and yen as U.S. data showed a recovering economy with historically low inflation. The Canadian dollar rallied against most of its major counterparts as industrial production in the U.S. increased more than forecast in November, fueling demand for North American assets.“You still have the debt concerns in Europe, that’s what’s weighing down on the euro,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “It’s the overall European situation and the uncertainty of how it’s going to be resolved.”
U.S. Homebuilder Confidence Unchanged in December Amid Depressed Demand. Confidence among U.S. homebuilders was unchanged in December from a month earlier, indicating residential construction will stay near depressed levels. The National Association of Home Builders/Wells Fargo index of builder confidence held at 16, matching the median forecast of economists surveyed by Bloomberg News, data from the Washington-based group showed today. Readings below 50 mean more respondents said conditions were poor.
U.S. Industrial Production Rises More Than Forecast. Industrial production in the U.S. increased more than forecast in November, helped by gains in computers, home electronics and appliances, signaling factories will support economic growth into next year. Output at factories, mines and utilities rose 0.4 percent, the biggest gain since July, after a revised 0.2 percent drop in October, figures from the Federal Reserve showed today in Washington. Economists forecast a 0.3 percent gain, according to the median of 75 projections in a Bloomberg News survey. Manufacturing rose 0.3 percent for a second month.
Wall Street Journal:
WSJ/NBC Poll Shows Solid Support for Tax Package. The poll found that 59% approve of the agreement, against 36% that disapprove, and those numbers are relatively consistent across party lines.
Dylan Grice: Actually, Buying Commodities is a Terrible Idea and Your Real Return Will be Zero. Dylan Grice of Societe Generale doesn't think commodities themselves make a very good investment. In fact, Grice is confident commodities make a real return of 0% over the long-haul. This may be shocking, with all the bullish talk of surging commodity prices, the market seems a natural investment. Grice contends that, actually, a long-term bet on commodities is a long-term bet against human ingenuity.
Zero Hedge:
Rosie On Further Evidence of the "Mother of all Margin Squeezes". (graphs) A slew of traditionally interesting insights in today's piece by David Rosenberg. Probably the most interesting data point has to do with further evidence of what as we have been claiming for about two months now, is shaping up to be the "mother" of all margin squeezes.
New York Times:
U.S. Called Vulnerable to Rare Earth Shortages. The United States is too reliant on China for minerals crucial to new clean energy technologies, making the American economy vulnerable to shortages of materials needed for a range of green products — from compact fluorescent light bulbs to electric cars to giant wind turbines. So warns a detailed report to be released on Wednesday morning by the United States Energy Department.
Anti-Austerity Protest in Greece Turns Violent. Thousands of Greeks took to the streets of the capital on Wednesday for a protest against a fresh wave of austerity measures which was marred by violence as a general strike brought international travel and public services to a standstill.
TheStreet.com:
Mortgage Activity Eases as Rates Head Up. The volume of mortgage loan applications decreased 2.3% on a seasonally adjusted basis in the week ending Dec. 10, the Mortgage Bankers Association said early Wednesday. Mortgage activity fell 0.9% in the prior week. Refinancing application volume decreased 0.7% from the previous week. It was the fifth consecutive weekly drop in refinancing activity, and came on the heels of a 1.4% drop in the prior week. Home-purchase loan applications fell 5% in the week, on a seasonally adjusted basis, after ticking 1.8% higher a week earlier. On an unadjusted basis, the MBA's purchase index was 16.6% lower than in the year-earlier week. The average rate on a 30-year fixed mortgage increased to 4.84%, from 4.66% in the prior week. It was the highest rate observed since early May and was the fifth consecutive weekly increase.
Tech Ticker:
Europe in Crisis: "There's a Lot of Potential Dominoes Over There," Mauldin Says. (video) Europe's debt crisis returned to center stage Wednesday after Germany again balked at expanding the size of the EU bailout package and Moody's warned it may downgrade Spain's debt. Looking out into 2011, the potential for a European banking crisis is "the one thing that makes me nervous," says John Mauldin, president of Millennium Wave Securities and author of the Thoughts from the Frontline e-letter. EU banks, led by those in Germany and France, have $2.28 trillion of exposure to the debts of Greece, Ireland, Portugal and Spain, according to the Bank for International Settlements. Add in the exposure of European banks to the debts of other European banks - likely in the trillions when the nominal value derivatives are included -- and "there's a lot of potential dominoes over there," he says.
Reuters:
Baidu(BIDU) Sees Growth Rate Slowing in 2011. China's top search engine, Baidu Inc (BIDU), sees its top-line and bottom-line growth rates softening over the next year on a higher base of comparison, as it eyes acquisitions and "contextual" ads to boost growth in the future. "No ... We have such a bigger base," Haoyu Shen, Baidu's senior vice president of business operations, said at the Reuters China Investment Summit when asked whether the firm can keep up its stellar top and bottom-line growth rates into 2011.
US Credit Card Delinquencies, Usage Fall. Credit card delinquency rates fell at major U.S. lenders in November as fewer consumers fell behind on their bill payments, signaling that they are recovering from the stress of the financial crisis. But consumers are also avoiding racking up more debt on their credit cards, even during the holiday shopping season, in a sign that lenders will be struggling to rebuild their businesses for some time to come.
U.S. Equity Investors Most Bullish in 2 Years - Data. U.S. equity investors are more bullishly positioned than at any time in the last two years, figures from Data Explorers show, following a sharp market rally since September. Investors currently have 10.8 times as many long positions as short positions -- bets on falling prices -- in the United States, the highest since the ratio was calculated two years ago, according to the data.
Germany must be prepared to sacrifice more sovereignty and money in order to preserve the euro, former Chancellor Helmut Schmidt said. Germany ought to be prepared to sacrifice more to the European project because the country had "massively contributed to conflict" in the past, Schmidt said.
RTE:
The European Union will charge Ireland a 3% interest margin on teh 22.5 billion euros of its aid package. RTE in the report broadcast today also cited the European Court of Auditors as saying that the EU has never charged an interest margin for money it has lent or guaranteed.
ABC:
Spanish Prime Minister Jose Luis Rodriguez Zapatero will ask the European Union to be more flexible with the use of the region's bailout fund. Zapatero will request that the fund be used spontaneously to give lines of credit to member countries which are experiencing a lack of liquidity due to the excessive lack of confidence shown by markets.
Xinhua:
Chinese are decreasingly satisfied with their lives, including economic status, occupation and social security, citing the Chinese Academy of Social Sciences. Migrant workers born in the 1980s work longer and earn less than older migrants, citing the government research body's annual "Blue Book" on Chinese society.
Macau Daily Times:
Government Says No More Direct Land Grants to Casinos. There will be no more land plots granted for casino projects without a public tender once the new Land Law comes into effect, the Land, Public Works and Transport Bureau (DSSOPT) director Jaime Carion said yesterday.
Ireland's Bailout Fails to Revive Market for Bank Bond Sales: Euro Credit. Ireland’s bailout aims to wean the nation’s financial system off European Central Bank life support. Instead, the country’s lenders remain locked out of debt markets, with no relief in sight. Parliament votes today in Dublin on the country’s aid from the European Union and the International Monetary Fund. The rescue package includes as much as 35 billion euros ($47 billion) for the country’s banks, part of an 85 billion-euro accord reached Nov. 28 to avert defaults. With the government enjoying a voting majority and the country due to run out of money next year, the rescue is set to be approved. Yet Ireland’s yield premium to 10-year German bunds is still nine times the average during the past decade. Irish banks are growing more reliant on the ECB, a report last week showed. Ireland absorbs a quarter of emergency ECB bank funding. Irish banks are “clearly finding it difficult to wean themselves from this support,” Eamonn Hughes, an analyst with Dublin-based Goodbody Stockbrokers, wrote in a note to clients Dec. 13. “It is probably unlikely that these trends can be reversed in the short term with further ratings downgrades for the banks in the past fortnight.”
Real Estate Avoids 'Catastrophe' With Yields at '07 Levels: Credit Markets. Investor confidence in U.S. commercial property is the highest since the 2007 market peak, a sentiment reflected in bonds of real estate companies that own everything from New York skyscrapers to California strip malls. Yields on debt issued by real estate investment trusts average 210 basis points more than Treasuries, the least since Nov. 12, 2007, according to Bank of America Merrill Lynch index data. The debt has returned 13.2 percent this year, trumping a 8 percent gain by investment-grade bonds. The debt of companies that own offices, shopping centers, apartments and warehouses has rallied as a dearth of new development spurs demand “little by little,” according to billionaire investor Sam Zell, chairman of Chicago-based apartment owner Equity Residential. The Moody’s/REAL Commercial Property Price Index has been little changed since October 2009 after plunging 45 percent in two years.
Chinese Consumers Signal Deepest Concern With Prices Since 1999. Chinese consumers signaled their deepest concern with inflation since 1999, underscoring the case for policy makers to step up efforts to contain the fastest increase in prices in more than two years. A People’s Bank of China survey of 20,000 people in 50 cities showed 74 percent considered prices too high, 15.6 percentage points more than in the third quarter, the bank said on its website today. “Interest rate normalization is the best option,” Yao Wei, an economist at Societe Generale SA, said in Hong Kong today. Inflation is “eroding purchasing power” and encouraging consumers to shift savings into assets such as stocks, she said. The benchmark one-year deposit rate is 2.5 percent and the lending rate is 5.56 percent. A measure of lenders’ confidence fell in the fourth quarter to the lowest level in a year, another central bank survey showed today. About half of financial institution executives expect a tighter monetary policy in the next quarter, according to the poll.
Dubai Property Prices May Continue to Fall for Two More Years. Dubai property prices may drop for the next two years, extending a decline in the Persian Gulf sheikhdom that’s already cut values by more than 60 percent since the 2008 peak. Residential values may fall as much as 20 percent more by the end of 2012 if new homes are built as planned, according to broker Landmark Advisory in Dubai. Cluttons LLP, a London-based property consultant, and Jones Lang LaSalle Inc., the second- largest publicly traded commercial property broker, also forecast further declines. About 48,000 homes will come on to the market in the next two years, or about 12 percent of existing supply, according to Jesse Downs, director of research at Landmark. “There is still no parity between supply and demand,” said Paul Richard, associate director at Cluttons in Dubai, which estimates that 35,000 homes will be completed through 2012. “You’re looking at a good two years” for Dubai’s market to reach bottom, he said.
North Korea Building Tunnel for Possible Nuclear Test, Chosun Ilbo Reports. North Korea is building a tunnel at a site where it conducted two underground nuclear tests, the Chosun Ilbo newspaper reported, citing a South Korean intelligence official it didn’t identify. North Korea may be able to conduct a nuclear test as early as March at the rate the tunnel is being built at Punggyeri in the country’s northeastern corner, the Korean-language newspaper said.
Consumer Agency's Warren Said To Hire Ohio Attorney General. Elizabeth Warren, the special White House adviser setting up the Bureau of Consumer Financial Protection, has selected Ohio Attorney General Richard Cordray to head the new agency’s enforcement arm, according to two people briefed on the appointment.
U.S. Investors Add Most to Money-Market Mutual Funds in Almost Two Years. U.S. investors added more money to money-market mutual funds in November than they have in almost two years as they took out cash from stock and bond funds in a period of rising interest rates. Money funds attracted a net $24.7 billion, the most since January 2009, Chicago-based Morningstar Inc. said today in a report. Investors pulled $1.9 billion from stock funds and $1.5 billion from bond funds, led by $7.6 billion in withdrawals from municipal-bond funds. “Investors retreated in a big way in November,” Kevin McDevitt, editorial director at Morningstar, wrote in the report.
New York Democratic Senate Majority Leader Indicted for Stealing From Health Clinics. Pedro Espada Jr., the New York Senate majority leader, and his son were indicted on charges of embezzling more than $500,000 from nonprofit health-care clinics in the Bronx section of New York City. From 2005 through 2009, Espada, 57, and his son, Pedro Gautier Espada, 37, abused their positions at Soundview Healthcare Center in the Bronx, which gets more than $1 million a year in federal funding, according to U.S. Attorney Loretta Lynch in Brooklyn, where the case is filed. “The indictment alleges that funds that could and should have been applied to purchase medical equipment and enhance health-care services for an historically under-served population were diverted by the defendants for their personal use,” Lynch said today in a statement.
'Easy Money' Runs Out for Singapore Air, Korean Air as Cargo Demand Slows. Asian airlines expect cargo demand to slow as rising U.S. inventories and waning growth in Europe curbs shipments of electronics and luxury goods. Korean Air Lines Co., the world’s largest international cargo carrier, said demand will fall this month because of rising stockpiles of liquid-crystal display televisions, computers and MP3 players. Increases in yields, a measure of rates, are also likely to “moderate in the near term,” said Singapore Airlines Ltd.’s cargo arm, the fourth-largest. Freight demand may wane after U.S. retailers’ inventories climbed to an 18-month high in September, helped by restocking that drove a 28 percent jump in Asia-Pacific carriers’ cargo traffic through October. Europe’s economic growth may slow to 1.8 percent next year, according to the International Monetary Fund, while tighter lending in China may sap demand for shipments of luxury goods in the world’s most populous nation. “The easy money has been made for cargo operators,” said K. Ajith, an analyst at UOB-Kay Hian Research Pte in Singapore.
Japan Confidence Deteriorates for First Time Since Crisis. Confidence among Japan’s largest manufacturers worsened for the first time since the end of the financial crisis last year as a stronger yen eroded export gains and the effect of government stimulus measures faded. The quarterly Tankan index of sentiment at large manufacturers dropped to 5 in December from 8 in September, the Bank of Japan said in Tokyo.
Wall Street Journal:
Justice Department to Join Oil-Spill Lawsuits. The Justice Department on Wednesday is expected to seek to join civil lawsuits resulting from the Gulf of Mexico oil spill, the first major federal legal action in the probe of the disaster, according to people familiar with the matter. Dozens of private-party lawsuits have been consolidated in so-called multidistrict litigation in federal court in New Orleans, representing claims against BP PLC(BP) and its contractors for damages from the worst oil spill in U.S. history.
Philip Falcone's $22.5 Million Mortgage. Harbinger Capital founder Philip Falcone’s personal finances have garnered a bit of attention of late. Now, Deal Journal colleague Robert Frank has news of new loan that the hedge fund manager and his wife took out.
Harry Reid's Holiday Jam. What the Senate wants to pass while you're not paying attention. In Majority Leader Harry Reid's rush to beat the looming expiration of the 111th Congress, the Senate has become the express lane to jam through changes in military rules, a giant spending bill and even an arms treaty—and all with virtually no deliberation. Why are Republicans putting up with it?
Business Insider:
And Now Presenting: Amazing Satellite Images Of The Ghost Cities Of China. The hottest market in the hottest economy in the world is Chinese real estate. The big question is how vulnerable is this market to a crash. One red flag is the vast number of vacant homes spread through China, by some estimates up to 64 million vacant homes. We've tracked down satellite photos of these unnerving places, based on a report from Forensic Asia Limited. They call it a clear sign of a bubble: "There’s city after city full of empty streets and vast government buildings, some in the most inhospitable locations. It is the modern equivalent of building pyramids. With 20 new cities being built every year, we hope to be able to expand our list going forward."
Goldman(GS) Works Its Capture Magic, Hires 15 Year New York Fed Derivatives Reform Veteran. If you can't beat them, might as well get paid by them. Such were the prevailing thoughts in the head of New York Fed veteran Theo Lubke, who after 15 years at Liberty 33, most recently as head of reform efforts in the private derivative market, famous due to its size of roughly €583 trillion which may or may not take the financial system down with it during the next market meltdown. And so, after realizing the derivatives reform is impossible, and further realizing that getting paid a grossly exaggerated government salary for what is basically a lobby job, Lubke has instead decided to get paid an even more exorbitant amount by everyone favorite monopolistic bloodsucking parasite. What is most ironic is that during an ISDA conference in Beijing in April 2009, Ludke said: “It is simply unacceptable in today’s environment that the design and structure of the OTC derivatives market can be controlled by a handful of large dealers.” Oh well - an average government salary is $119,982, an average Goldman Sachs salary is about 4 times greater, an infinite amount of hypocrisy - priceless. For everything else there is the taxpayer bailout debit card.
IBD:
Peak Conditions Provide Fertile Grounds For Farm Equipment. Right now, farmers in the U.S. and around much of the world are enjoying boom times. This should turn into continuing gains for major farm equipment makers Deere (DE), Agco (AGCO) and CNH Global (CNH), who stand to profit from a mix of factors now aiding farmers.
Forbes:
Meet The Heiress Bailing Out Julian Assange. As WikiLeaks founder Julian Assange continues his fight against extradition in a London court, several high-profile benefactors have stepped in with offers to pay surety on his £200,000 ($378,000) bail. Some, like Fahrenheit 9/11 filmmaker Michael Moore and director Ken Loach, are well-known social and political activists. One of Assange’s most vocal financial backers is better known as the wealthy scion of one of Britain’s most famous banking dynasties — although she herself might be annoyed with that characterization.
Politico:
Financial Crisis Committee in Turmoil. Another bipartisan commission – this one seeking the causes of the financial crisis – is ending up deadlocked in a partisan dispute. Republican members of the Financial Crisis Inquiry Commission, which was supposed to complete its final report Wednesday, are preparing to issue dissenting opinions on their own in the coming days. They are unhappy that commission chairman Phil Angelides, a Democrat, has delayed the report until late January, and that he has reserved just 36 pages for dissenting opinions in a document expected to run many hundreds of pages.
Democrats' Budget Bill: $1 Trillion; 1,900 Pages. Defying the political odds, Senate Democrats rolled out a year-end, governmentwide spending bill Tuesday that cuts more than $26 billion from President Barack Obama’s 2011 requests even as it holds firm to thousands of the appropriations earmarks so adamantly opposed by critics of Congress. Filling more than 1,900 pages, the $1.1 trillion measure represents an increase of less than 2 percent in annual spending but makes for an easy target of ridicule — a last stand by the Senate’s old bulls before the tea party takeover.
Reuters:
US Retail Gasoline Demand Down 2.7% - Mastercard. U.S. retail gasoline demand fell 2.7 percent last week as prices rose to their highest level this year, MasterCard Advisors' SpendingPulse report showed on Tuesday. Average gasoline demand fell by 255,000 barrels per day (bpd) to 9.182 million bpd in the week to Dec. 10. Demand was 1.3 percent lower than levels seen the same week last year. Over the latest four weeks, U.S. gasoline consumption was 0.3 percent lower year-over-year. Average retail gasoline prices went up 9 cents to $2.96 a gallon, according to MasterCard.
US Air Force Blocks NYT, Guardian Over WikiLeaks. The U.S. Air Force has blocked employees from visiting media websites carrying leaked WikiLeaks documents, including the New York Times (NYT) and the Guardian. Major Toni Tones, a spokeswoman at Air Force Space Command in Colorado, said it had blocked employees whose computers are connected to the Air Force network from accessing at least 25 websites that have posted WikiLeaks documents.
Greek Anti-Austerity Strike to Paralyze Transport. Striking Greek workers will ground flights, shut down schools and paralyse public transport in a nationwide walkout on Wednesday, the culmination of protests against austerity laws aimed at stemming a debt crisis.
US Senate Bill Would Limit Entry of China Poultry. The United States would restrict entry of poultry products from China as part of a Senate spending bill assembled at the same time U.S. and Chinese officials met to resolve trade disputes.
EUBankers:
Investors Shun Banks' Junior Bonds. Investors are shunning the junior debt of European banks as officials in Ireland and elsewhere move forward with plans to force losses on holders of riskier subordinated bonds. The spread, or gap, between the cost of protecting senior European bank debt against default and that for subordinated debt has hit its widest level since March 2009. According to the Markit iTraxx Senior/Sub Financials index, which measures credit default swap prices, the cost of insuring junior debt has risen by 14 per cent this month – compared with just 3 per cent for senior debt. It now costs €325,000 ($436,000) a year to insure €10m of bank junior bonds over five years.
China Daily:
The city of Beijing may introduce additional measures aimed at curbing home price gains in the Chinese capital, including ones related to taxes and the availability of credit, citing Xu Zhijun, spokesman for the Beijing Municipal Commission of Housing and Urban-Rural Development.
China Securities Journal:
China has "basically" spent all of its 4 trillion-yuan government stimulus program announced in 2008, citing Zhang Ping, the head of China's National Development and Reform Commission.
Evening Recommendations Citigroup:
Reiterated Buy on (SKS), target $15.
CSFB:
Rated (LULU) Outperform, target $85.
Rated (COH) Outperform, target $70.
Rated (GPS) Outperform, target $26.
Rated (TIF) Outperform, target $77.
Rated (URBN) Outperform, target $45.
Night Trading
Asian equity indices are -1.0% to unch. on average.
Asia Ex-Japan Investment Grade CDS Index 102.50 -1.5 basis points.
Asia Pacific Sovereign CDS Index 103.0 -1.25 basis points.
The Consumer Price Index for November is estimated to rise +.2% versus a +.2% gain in October.
The CPI Ex Food & Energy for November is estimated to rise +.6% versus a +.6% gain in October.
Empire Manufacturing for December is estimated to rise to 5.0 versus a reading of -11.14 in November.
9:00 am EST
Total Net TIC Flows for October are estimated to fall to $51.0B versus $81.7B in September.
9:15 am EST
Industrial Production for November is estimated to rise +.3% versus 0.0% in October.
Capacity Utilization for November is estimated to rise to 75.0% versus 74.8% in October.
10:00 am EST
The NAHB Housing Market Index for December is estimated at 16.0 versus 16.0 in November.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,500,000 barrels versus a -3,819,000 barrel decline the prior week. Gasoline supplies are expected to rise by +2,000,000 barrels versus a +3,811,000 barrel gain the prior week. Distillate inventories are estimated unch. versus a +2,154,000 barrel rise the prior week. Finally, Refinery Utilization is expected unch. versus a +4.9% increase the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Lockhart speaking, weekly MBA Mortgage Applications report, BofA Merrill Lynch Basic Materials Conference, Deutsche Bank BioFEST Conference, (DAL) investor day, (AVT) analyst day, (DG) analyst meeting, (DHR) analyst meeting, (VFC) analyst day and the (DGI) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by real estate and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 85.99 bps -.12%
European Financial Sector CDS Index 138.45 bps -.97%
Western Europe Sovereign Debt CDS Index 184.17 bps -1.78%
Emerging Market CDS Index 208.44 bps -1.14%
2-Year Swap Spread 22.0 +1 bp
TED Spread 18.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 283.0 +14 bps
China Import Iron Ore Spot $167.50/Metric Tonne +.36%
Citi US Economic Surprise Index +11.0 +9.6 points
10-Year TIPS Spread 2.22% +2 bps
Overseas Futures:
Nikkei Futures: Indicating +70 open in Japan
DAX Futures: Indicating +2 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 bearish as the S&P 500 trades slightly lower despite less eurozone debt angst and mostly positive economic data. On the positive side, Hospital, Biotech, Medical Equipment and Telecom shares are especially strong, rising more than 1.0%. The Spain sovereign cds is dropping -3.04% to 324.80 bps and the Portugal sovereign cds is falling -3.56% to 451.80 bps. Weekly retail sales rose +3.1% this week versus a +3.8% gain the prior week. On the negative side, Education, Gaming, REIT, Bank, Disk Drive, Networking, Alt Energy, Oil Tanker and Computer Hardware shares are under meaningful pressure, falling more than 1.0%. (XLF)/(IYR) have underperformed throughout the day and the transports are relatively weak again today. The Asia Ex Japan High Yield CDS Index is up another +1.38% and has risen +4% over the last five days. As well, the US Muni CDS Index is up another +.18% and has jumped +14% over the last five days. Shanghai copper inventories are jumping +5.4% and have risen +16.5% over the last five days to the highest level since May 20th. Short/intermediate-term gauges of investor sentiment remain overly bullish, which is a big negative. The financials had been propping up the broad market of late. They are now rolling over. As well, a number of market leaders are a bit "tired." I expect US stocks to trade modestly lower into the close from current levels on China inflation worries, profit-taking, US tax policy uncertainty, more shorting, soaring long-term rates, technical selling and ongoing eurozone debt fears.
