EU Agrees to Create Post-2013 Crisis Tool as Bloc Spars Over Current Steps. European Union leaders agreed to amend the bloc’s treaties to create a permanent crisis- management mechanism in 2013, while divisions flared over steps to prevent concern over debts from engulfing Portugal and Spain. Germany, the biggest contributor to Europe’s bailouts of Greece and Ireland, pushed through an accord to set up a system that would allow financial aid “if indispensable” to underpin the euro and might force bondholders to bear some of the costs of future rescues. “Our task now is to hold the course, walk not talk, and prove those wrong who predicted the demise of our common currency,” European Commission President Jose Barroso told reporters after the first session of an EU summit in Brussels late yesterday. The summit is slated to end around 1 p.m. today.
Portugal May Get Frozen Out by Bond-Sale 'Avalanche' in 2011: Euro Credit. Portugal risks being frozen out of the bond markets next year amid a wave of auctions from higher- rated governments and agencies that threaten to force the nation into seeking a bailout to pay its debts. “It has become the market consensus that Portugal’s ability to fund on a standalone basis is fairly constrained,” said Jamie Stuttard, head of European and U.K. fixed income at London-based Schroders Plc, which has $286 billion under management. “People have investment alternatives.”
Democrats Pull 'Omnibus' Budget Bill Amid Republican Opposition. The Senate’s top Democrat said he won’t try to pass a $1.2 trillion “omnibus” spending bill for the government loaded with thousands of lawmakers’ pet projects because Republicans withdrew their support for the measure. Senate Majority Leader Harry Reid, a Nevada Democrat, said tonight lawmakers will instead approve a stopgap funding measure of an as yet undetermined length. A so-called continuing resolution currently funding the government expires Dec. 18.
Mexico Drug War Death Toll Climbs to 30,196 Since 2006, Government Says. Mexican Attorney General Arturo Chavez said that 30,196 people have been killed in drug-related violence nationwide since President Felipe Calderon took office four years ago. The number of deaths from January to November this year was 12,456, Chavez said today in Mexico City.
Google(GOOG) Aims Twins Daggers at Microsoft's(MSFT) Heart: Tech by Rich Jaroslovsky. Forget about Google Inc.’s struggle with Facebook for eyeballs and programmers. Pay no attention to its fight with Apple Inc. over smartphones, or to any other tech rivalry. The search giant’s war with Microsoft Corp. is The Big One, the confrontation that will determine what kind of future Microsoft has, and maybe if it even has a future. And the two new weapons Google unsheathed last week carry an unmistakable message of mortal peril.
Kynikos's Chanos Says China Real Estate Boom Goes 'Unabated'. China’s property boom hasn’t slowed even after the government announced policy tightening measures, Jim Chanos, founder of Kynikos Associates LP, said today. The real estate market has picked up, said Chanos in an interview with Carol Massar and Matt Miller on Bloomberg Television’s Street Smart program. Millions of Chinese apartments have gone empty, he said. China is “on a treadmill to hell,” Chanos said in the interview, repeating his view in January.
U.S. Weighs Curbs on Biocrops. The U.S. Department of Agriculture is considering imposing restrictions for the first time on where and how a genetically modified crop may be grown, in a move that could eventually affect a wide swath of the farm industry.
California Asks Bond Underwriters To Detail Credit Default Swap Activity. Bill Lockyer, California's state treasurer, has amended a quarterly questionnaire for all 86 of the state's bond underwriters, forcing them to disclose what credit default swaps they have traded on the state's bonds, either for customers or for their own accounts. The disclosure forms could be sent to underwriters as soon as this week.
California's Housing Market Slows in November. The median home price falls 2.3% from a year earlier to $255,000. Statewide sales decline 3.9% from October and 12.4% from November 2009. California's housing market slowed in November, with both sales and prices falling. Some economists predict further declines next year if more foreclosures hit the market and the job engine remains sluggish. That year-over-year drop was the second consecutive decline in the median price after 11 months of improvement.
Institutional Investor:
Medallion Poised For One of Its 'Worst' Years.Jim Simons’ Medallion Fund is poised to post one of its worst years in its 23-year history. However, this just underscores how astoundingly the fund has performed over the years. Through November, Medallion, which for years has only been open to partners, employees and friends, is said to be up around 25 percent or so, net of its 5 percent management fee and 44 percent performance fee, according to knowledgeable sources. However, it could actually be a little higher than this. At the very least, this works out to around 50 percent gross, which would still make it one of the year’s best performing hedge funds again. However, Medallion's net return has ranged between 40.5 percent and 84.1 percent in each of the past four years. Incredible.
Reuters:
China Property Tightening Effective: Vanke. Beijing's measures to cool "ridiculous" property prices have made some progress, but the risks of a bubble mean the tightening campaign is unlikely to ease up in the year ahead, the chairman of China's largest property developer said. Skyrocketing property prices in China's top cities have stocked public discontent, prompting the government to step in. China risked a Japanese-style real estate bubble if the government doesn't control what Wang described as ridiculous property price moves in its top-tier cities such as Beijing and Shanghai. "It could be really, really bad without the government stepping in," said the soft-spoken Wang, who was dressed in a minimalist style, with an open-collared white shirt and black jacket. "If the bubble bursts, Japan's past will be China's present."Although Wang worries about the risks of a bubble in China's property sector, he brushed aside talk that the country may end up worse than Dubai where a property price bubble imploded during the global financial crisis after years of heedless expansion. Among the loudest critics, legendary short-seller Jim Chanos has said he is shorting China because he expects the economy to implode in a real estate bust. China is "on an economic treadmill to hell" and the country's real estate-fueled bubble is "Dubai times 1,000," said Chanos. "It's not comparable. These are very different markets," said Wang, referring to Chanos' Dubai analogy.
Goldman(GS) Seeks to Expand Wealth Arm By a Third. Goldman Sachs Group Inc (GS) on Thursday said it is expanding its wealth management business worldwide and intends to boost its ranks of advisers by a third over the next few years.
The U.K., France and Germany are in talks aimed at freezing the European Union budget until 2020. While German Chancellor Angela Merkel and French President Nicolas Sarkozy support the letter, they want to keep it secret to avoid diplomatic problems with other EU countries.
Cost of Insuring Against Ireland Default Rises.THE cost of insuring Irish bank bonds against default increased after legislators approved a burden-sharing bill analysts said was harsher than expected. The new law compels junior bondholders to share the cost of rescuing lenders after the Government was forced to accept a €85 billion aid package. The Credit Institutions (Stablisation) Bill 2010, gives the finance minister the power to change bondholders’ rights, including interest and principal payments, as well as impose debt-for-equity swaps and asset transfers. It’s "a harsh bill," Eleonore Lamberty, an analyst at ING Bank in Amsterdam, wrote in a client note. The measure "will intensify the burden-sharing fear and will cause further pressure on subordinated bonds of pan-European banks which have received state aid," she wrote.
21st Century Business Herald:
Shanghai may impose a property tax on areas of new homes that exceed 200 square meters.
China aims to cut energy consumption per unit of gross domestic product by 16% in five years by 2015, citing people helping draft the five-year energy-reduction targets starting from 2011.
Evening Recommendations Citigroup:
Reiterated Buy on (ABC), target $38.
Rated (ACOM) Buy, target $40.
Needham:
Rated (JNPR) Buy, target $42.
Night Trading
Asian equity indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 104.0 -1.0 basis point.
Leading Indicators for November are estimated to rise +1.1% versus a +.5% gain in October.
Upcoming Splits
(AME) 3-for-2
Other Potential Market Movers
None of note
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and technology 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 88.03 bps +2.08%
European Financial Sector CDS Index 146.11 bps +7.77%
Western Europe Sovereign Debt CDS Index 182.67 bps +.92%
Emerging Market CDS Index 215.43 bps +.57%
2-Year Swap Spread 24.0 -1 bp
TED Spread 18.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 281.0 -4 bps
China Import Iron Ore Spot $168.80/Metric Tonne +.18%
Citi US Economic Surprise Index +17.80 +3.5 points
10-Year TIPS Spread 2.31% -1 bp
Overseas Futures:
Nikkei Futures: Indicating +79 open in Japan
DAX Futures: Indicating +3 open in Germany
Portfolio:
Higher: On gains in my Tech, Retail, Ag, Biotech and Medical long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher despite recent stock gains, rising eurozone sovereign debt angst, weakness in some key overseas markets and a plunge in (MA)/(V) shares. On the positive side, Gaming, Retail, Construction, Hospital, Biotech, Medical and Networking shares are especially strong, rising more than 1.0%. Healthcare-related stocks continue to trade very well. Lumber is rising another +1.97%. The -8 basis point decline in the 10-year yield in spite of today's mostly strong economic data may indicate yields are getting close to a tradable top. Gold is -.8% lower on the day. On the negative side, Homebuilding, Bank and Paper shares are lower on the day. (XLF)/(IYR) have underperformed again throughout the day. Copper is falling -.79%. Shanghai copper inventories are jumping another +5.61% and have risen +28.11% over the last 5 days. The Greece sovereign cds is climbing +4.49% to 973.55 bps, the Portugal sovereign CDS is rising +2.5% to 449.54 bps, the Italy sovereign cds is gaining +2.3% to 201.69 bps, the Belgium sovereign cds is increasing +2.36% to 207.06 bps and the Ireland sovereign cds is jumping 3.81% to 561.08 bps. The ongoing surge in the Euro Financial Sector CDS Index remains a big negative. Short/intermediate-term gauges of investor sentiment remain overly bullish, which is also a big negative. The AAII % Bulls fell to 50.23 this week, while the % Bears rose to 27.15. The Hang Seng Index and Spain's IBEX 35 continue to display technical weakness. US stocks remain extremely resilient, which is a large positive. If the S&P 500 can convincingly break above recent highs I will cover some of my hedges. I expect US stocks to trade modestly lower into the close from current levels on China inflation worries, profit-taking, more shorting and rising eurozone debt fears.
Philadelphia Factory Index Rises to Highest Since April 2005. Manufacturing in the Philadelphia region expanded in December at the fastest pace since April 2005 as orders and the factory workweek increased. The Federal Reserve Bank of Philadelphia’s general economic index unexpectedly rose to 24.3 from 22.5 last month. The gauge was forecast to decrease to 15, according to the median estimate in a Bloomberg News survey. The Philadelphia Fed bank’s new orders measure climbed to 14.6, the highest since February, from 10.4 in November. A measure of the average workweek increased to 19.3 in December, the highest since March 2004, indicating hiring may soon pick up. The shipments gauge decreased to 7.3 from 16.8 last month. The employment index fell to 5.1 from 13.3 last month, which was the highest since August 2007. The index of prices paid jumped to 51.2, the highest since July 2008, from 34 the prior month, while its gauge of prices received increased to a two-year high of 10.7 from minus 2.1.
Debt Contagion Threat Splits EU Leaders Seeking Rules to Stem Euro Crisis. European Union divisions widened over how to contain the debt contagion that threatens the euro, limiting a summit that began today to an agreement on a crisis- management mechanism that takes effect in 2013. German Chancellor Angela Merkel balked at boosting or making more flexible use of the EU’s 750 billion-euro ($1 trillion) emergency fund, as leaders neared an accord on the tool to contain future debt shocks and the European Central Bank armed itself with more capital. Strife among Merkel, the ECB, Luxembourg Prime Minister Jean-Claude Juncker, and the German domestic opposition intensified on the eve of the Brussels summit, marring confidence in Europe’s handling of the fiscal woes that forced Greece and Ireland to fall back on financial handouts. “There is a situation of European gridlock again with Germany blocking actions to make progress,” said Nick Kounis, chief euro-region economist at ABN Amro NV in Amsterdam and a former U.K. Treasury official. “There is a high risk of the crisis re-escalating and maybe now it’s the quiet before the storm in markets.”
Europe Services, Manufacturing Growth Slows More Than Forecast. Europe’s services and manufacturingindustries slowed more than economists forecast in December, as smaller euro members failed to keep up with Germany’s export-led expansion. A composite index based on a survey of euro-area purchasing managers in both industries fell to 55 from 55.5 in November, the lowest in two months, London-based Markit Economics said today.
Investors should buy interest-rate swap spreads on two-year Treasuries as worsening sovereign debt woes in Europe drive up the cost of insuring the region's bonds, according to ICAP Plc.
OPEC Export Increase Slows as Winder Fuels Demand Ebbs, Oil Movements Says. The Organization of Petroleum Exporting Countries will increase crude loadings by the smallest amount since October as demand for winter fuels passes its peak, according to tanker-tracker Oil Movements. Shipments will rise 0.3 percent to 23.46 million barrels a day in the four weeks to Jan. 1 from 23.39 million barrels in the period to Dec. 4, Oil Movements said today in a report. That’s the smallest gain since Oct. 2. “We’ve certainly past the peak of the winter,” said Roy Mason, Oil Movements’ founder, in a telephone interview from Halifax, England. “In terms of products other than for distillates in Europe, stocks are still quite high. The tanker market will be quiet until mid-January.”
LME Copper Stockpiles to Climb on China Re-Routing, Sucden's Goldwyn Says. Copper stockpiles in London Metal Exchange warehouses may gain as traders in China re-route metal previously intended for imports because of ample local supplies and slow seasonal demand, according to Sucden Financial Ltd.
Gold Declines to Two-Week Low on Investor Sales After 26% Rally in 2010. Gold fell to a two-week low on investors sales following a 26 percent rally this year. Silver, palladium and platinum also dropped. The metal headed for a 10th straight annual gain amid record investment in exchange-traded funds backed by bullion. The price reached an all-time high of $1,432.50 an ounce on Dec. 7, partly on demand for a store of value amid escalating debt in the U.S. and Europe.
No More Bears for Emerging Markets Unsettles Investors Shunning Conformity. Individual investors are pouring money into emerging-market stocks at the fastest pace since 2007 as the biggest rally in 16 years spurs three of the world’s largest banks to predict shares will hit record highs next year. The last time investors were this bullish, the MSCI Emerging Markets Index sank 11 percent in three months, data compiled by EPFR Global and Bloomberg show. The gauge trades for 2 times net assets, within 4 percent of the most expensive level on recordversus the MSCI World Index of developed-nation shares, according to MSCI Inc. “After all this money has flooded in, with everyone in love with them and all the euphoria surrounding them, it’s hard to find fundamental value,” said Harris Associates LP’s David Herro, who was named international stock fund manager of the decade this year by Morningstar Inc. “Growth in emerging markets is greatly helping the world, but you can overpay for it and that’s what’s happening.”
Shale-Gas Output May Double by 2035, Reducing Energy Imports, U.S. Says. Production forecasts for natural gas locked in shale have doubled, which will help the U.S. become less reliant on imported energy, according to a federal agency. The Energy Information Administration’s annual long-term forecast shows gas from shale will play a bigger role in meeting U.S. demand, Richard Newell, agency administrator, said today in Washington. Production in 2035 is “twice the level that we had in last year’s outlook,” he said.
WikiLeaks Founder Assange Released on Bail, Says He Will Continue His Work. WikiLeaks founder Julian Assange said he would continue his work and “protest my innocence” after being released from a London prison on bail today. “During my time in a Victorian prison, I had time to reflect on the conditions of those people around the world also in solitary confinement in conditions that are more difficult than those faced by me,” Assange, 39, said outside the High Court in London today, while thanking supporters who helped him post bail. “Those people also need your attention and support.” Assange has been in jail since Dec. 7, when the Australian turned himself in to U.K. police after Swedish authorities issued a European arrest warrant. Assange is wanted for questioning over claims of rape and molestation in Sweden.
Sehgal Plans to Buy Apple(AAPL), Procter & Gamble Amid Forecast S&P 500 to Surge. Rohit Sehgal, a money manager whose Canadian growth fund has outperformed 92 percent of its peers over the past five years, said he is building his U.S. holdings in anticipation of a surge in American stocks next year. The manager of the Dynamic Power Canadian Growth Fund said he plans to increase the fund’s stakes in companies including Apple Inc., Procter & Gamble Co. and U.S. industrial companies, estimating the Standard & Poor’s 500 Index will gain as much as 20 percent in 2011 as the economy grows faster than forecast.
Goldman Sachs(GS) Withdraws From Massachusetts Underwriting Teams. Goldman Sachs Group Inc. asked to be removed from two state underwriting teams in Massachusetts after Neil Morrison, the firm’s Boston-based public-finance banker, helped Treasurer Tim Cahill’s failed run for governor.
Citi(C) Investors May Need to Wait Another Year: Pandit. While Citigroup has managed to rebuild itself from the ruins of the financial crisis, investors likely will have to wait until 2012 to reap the rewards, CEO Vikram Pandit told CNBC.
Watch Out Maryland, Your CDS Just Went Vertical. (graph) The U.S. muni bond market continues to trouble investors, and while there are some stand out worries (California, Illinois, New York), others are starting to crop up. Maryland might be a serious concern if the spike in its CDS price is any sign.
New York Post:
Boffo Year for Wall Street $$. This year could be the second most profitable for New York City's securities industry, and the average bonus may top last year's because so many bankers and brokers have been laid off. "Wall Street earned $21.4 billion during the first three quarters of 2010," state Comptroller Tom DiNapoli said in a report yesterday. "While much less than last year's record of $61.4 billion, which was fueled by federal assistance, the securities industry is on track for the second-highest level of profitability on record," he said. Meanwhile, at Goldman Sachs, Chief Executive Lloyd Blankfein is expected to receive about $24.3 million in stock next month -- part of a 2007 pay package that was restricted for three years.
Aeropostale(ARO) Girding for Buyout Buzzards. Aeropostale has a message for any buyout firms that may be circling: Buzz off! The New York-based teen apparel retailer -- whose shares got hammered last week by a disappointing fourth-quarter outlook and a management shuffle -- has hired Barclays Capital as a strategic adviser, The Post has learned. But rather than using Barclays to explore options including a possible sale, Aeropostale is doing the opposite: preparing for a defense in case it's approached by private-equity firms, according to a person close to the situation.
Fed to Slash Debit Card Swipe Fees. The Federal Reserve is expected to announce a proposal as soon as today to slash debit-card swipe fees by 50 to 60 percent, The Post has learned. The proposed cut, while steep, may be seen as a victory for the banks as financial institutions were bracing for a drop of as much as 80 percent in swipe fees, the money banks charge merchants for using debit cards.
New York Times:
4 Arrested in Insider Trading Investigation. The FBI has arrested four people in connection with a long-term insider trading investigation it is conducting along with federal prosecutors in Manhattan. The defendants were identified as Walter Shimoon, Mark Longoria, Manosha Karunatilaka and James Fleishman. They are accused of conspiring to provide confidential information to investors.
Boston Globe:
Massachusetts Has $213 Million Stake in Earmark Fight. A $1.1 trillion spending bill now under review in the Senate includes at least $213 million for 174 earmarked projects for Massachusetts in what amounts to a last-ditch effort to approve items that have come under attack as wasteful porkby many Republicans and President Obama. The bill includes $400,000 for the Paul Revere House in Boston’s North End, $8 million for the Edward M. Kennedy Institute for the United States Senate, and dozens of other earmarks that would be peppered throughout the Bay State.
Big Government:
Exclusive: Sources Confirm FDA Moving Ahead With Rationing. Sources on Capitol Hill have informed Capitol Confidential that the Food and Drug Administration (FDA) will indeed begin rationing late-stage cancer drugs. The FDA will make an 11am (EDT) announcement that it will begin denying Avastin to breast cancer patients but will graciously offer the creator of the drug a final show trial of a hearing in 60 days. The FDA will be judge, jury and executioner. Unfortunately, the victims of breast cancer will be the ones punished and harmed. The FDA has never before limited access to a drug based upon cost considerations. Yet there are some within the agency that are intent on breaking new ground to justify a rationing regime designed to drive down the cost of health care. Avastin is the test case. There is no evidence that the pending show trial will temper their enthusiasm for thier rationing scheme. In essence, the Avastin decision is the first battle in ObamaCare. Opponents of ObamaCare warned of the implications of a government take-over of our health care system — first and foremost was rationing. And that is what has happened.
Risk.net:
Irish Bail-Out Fails to Quell Bank Worries. The cost of insuring against a default of Ireland's major banks went up today, despite yesterday's aid package agreed by parliament.Five-year upfront credit default swaps (CDS) on Irish banks rose again today, despite the Irish parliament's approval yesterday of an €85 billion European Union/International Monetary Fund bail-out, including €35 billion to support Ireland's banking sector. CDSs on Bank of Ireland rose steeply from 13.5% up front at 1.00pm UK time yesterday to 14.5% at 1.00pm today, an all-time high for the bank. The upfront cost of protection against Allied Irish defaulting rose from 18.5% yesterday to 22.5% today. CDSs on Anglo Irish Bank reached 28%, up from 27% two days ago. Meanwhile eurozone peripheral sovereigns experienced a rough day, with only Greece seeing falling risk perceptions. Five-year credit default swaps on Portugal rose from 442 basis points at close of play yesterday to 456bp at 1.00pm today. CDSs on Ireland rose from 546bp to 561bp over the same time period, while CDSs on Italy's debt increased from 195bp to 201bp. Spain's CDSs rose from 319bp to 327bp, while CDSs on Hungary inched up from 377bp yesterday to 379bp at 1.00pm today. The cost of protection against a Greek state default fell from 955bp yesterday to 930bp today, according to data provider Markit. Germany continued to hover under its November 30 six-month high of 56bp, today moving up one basis point to 53bp.
Politico:
Tax Deal Hits Speed Bump in House. House Democratic leaders hit a speed bump en route to passing President Barack Obama's tax deal Thursday amid rekindled liberal fury over an estate tax provision the party finds too generous. Progressives were miffed that they would be forced to vote on the Senate-passed tax bill if they wanted to vote to replace the estate tax alteration with one authored by Rep. Earl Pomeroy (D-N.D.).
Spain Debt Auction Pushes Borrowing Costs to Decade High. Spain had to pay a high price to get it last bond sale of the year away, with borrowing costs hitting a ten-year high as investors stayed on the sidelines until EU authorities clarified their approach to the Spanish crisis.
German Chancellor Angela Merkel said the creation of euro bonds might discourage indebted European countries from reducing excessive deficits quickly, citing an interview. "With so-called euro bonds, weaknesses in Europe wouldn't be eliminated but only distributed to everybody," Merkel said. "Indebted countries wouldn't have the pressure to fix their budgets."
Euro2day:
Fitch Ratings will reassess its credit rating for Greece in the next few days. The reassessment will be announced within the next five days and contain both positive and negative elements that will mainly focus on public debt and refinancing.
Manila Bulletin:
Dry-Bulk Shipping Income to Fall in 2 Years.Shipowners will earn less next year and in 2012 from renting out vessels to haul goods such as coal and iron ore as the fleet expands, Arctic Securities said. The Baltic Dry Index, a measure of commodity-shipping costs, has slid 26 percent this year, according to the Baltic Exchange in London. At the same time, the fleet of dry-bulk vessels has swelled by 12 percent, Oslo-based investment bank Arctic said in a report dated today. Expansion will come to 8.8 percent next year and 6.1 percent in 2012, it estimated.
