North American Investment Grade CDS Index 85.65 +.84%
European Financial Sector CDS Index 160.44 bps +6.14%
Western Europe Sovereign Debt CDS Index 196.83 bps +1.20%
Emerging Market CDS Index 207.0 bps +.35%
2-Year Swap Spread 26.0 +3 bps
TED Spread 17.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 273.0 unch.
China Import Iron Ore Spot $170.70/Metric Tonne -.18%
Citi US Economic Surprise Index +14.30 -3.3 points
10-Year TIPS Spread 2.32% +1 bp
Overseas Futures:
Nikkei Futures: Indicating -36 open in Japan
DAX Futures: Indicating +16 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical, Biotech and Ag long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just slightly lower despite recent stock gains, Korean peninsula concerns, surging commodity prices and rising eurozone sovereign debt angst. On the positive side, Coal, Ag, Gold, Drug and Education shares are especially strong, rising more than .5%. The S&P GSCI Ag Spot Index is rising another +.5% and is making a new record high. Lumber is also rising +1.2%. The 10-year yield is stable again. The Citi Asia-Pacific Economic Surprise Index is rising +4.1 points to +15.4, which is the best level since Oct. 26th. On the negative side, Airline and Homebuliding shares are under pressure, falling more than 1.0%. The Greece sovereign cds is climbing +5.62% to 1,053.70 bps and the Italy sovereign cds is rising +3.26% to 232.62 bps. The Euro Financial Sector CDS Index remains at the highest level since mid-June and the Western Europe Sovereign CDS Index remains very near its record high set last month, which is also a big negative. The broad market continues to display exceptional resiliency as negatives continue to be ignored. The NYSE Arms has been high throughout the day, yet equity losses are minimal. I still believe the slow grind higher in the major averages to new 52-week highs could result in a short-term spike higher in stocks before any meaningful pullback commences as shorts throw in the towel and underperforming longs come in to finish out the year. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, less economic fear, short-covering, technical buying, buyout speculation and investment manager performance angst.
Demand for U.S. Capital Goods Rebounds as Spending Holds Up. Orders for U.S. capital equipment rebounded in November, signaling a slowdown in business investment may be less pronounced than some economists projected. Bookings for goods like computers and communications gear climbed 2.6 percent after a 3.6 percent decline in October that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. “There is still some equipment spending going on,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts. “It’s going to be a positive contributor to growth.” Orders for non-defense capital goods excluding aircraft are considered a proxy for future business investment. The revised drop in October compared with a previously estimated 4.5 percent decrease. Over the past three months, bookings climbed at a 7.1 percent annual pace, down from an 11 percent advance in October. Demand for computers and electronic equipment climbed 5.8 percent last month, the biggest gain since February 2009. Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, increased 1 percent after a 1.2 percent drop in October. Corporate profits increased 1.6 percent during the third quarter and were up 26 percent from the same three months last year.
Oil Trades Near Two-Year High as U.S. Inventories Decline, Economy Expands. Crude oil rose to the highest level in more than two years as confidence among U.S. consumers advanced to a six-month high, signaling that fuel demand will increase in the biggest oil-consuming country. Oil jumped as much as 0.9 percent after the Thomson Reuters/University of Michigan final index of consumer sentiment for December climbed to 74.5 from 71.6 in November. First-time filings for jobless benefits declined by 3,000 to 420,000 in the week ended Dec. 18, Labor Department figures showed. “Today’s data supports the economy and is boosting the oil market,” said Peter Beutel, president of Cameron Hanover Inc., a trading-advisory company in New Canaan, Connecticut. “All week we’ve wanted to move higher, either because of the rising stock market or the improving economic outlook.”
Jo-Ann Stores(JAS) to Be Acquired by Leonard Green Unit. Jo-Ann Stores Inc. agreed to be acquired by an affiliate of Leonard Green & Partners LP for $1.6 billion to accelerate expansion of the largest U.S. fabric retailer. The cash offer of $61 a share was 34 percent higher than yesterday’s closing price of $45.63, Hudson, Ohio-based Jo-Ann Stores said today in a statement.
Greek Health System Betrays Crippled Domestic Economy. “It’s the usual problems of Greece: bureaucracy, corruption and so on,” said Ioannis Datseris, director of nuclear medicine at To find out what’s gone wrong with the Greek economy, just look at the health-care system, according to a top medic at the country’s largest hospital.Evangelismos Hospital in Athens and vice president of a group of doctors, medical schools and unions advising the government. “The hospitals and the health service are part of this political system.”
Jobless Claims in U.S. Declined 3,000 Last Week in Sign Labor Market Heals. Initial U.S. jobless claims fell last week and the number of people on unemployment benefit rolls dropped to a two-year low, reinforcing evidence the labor market is improving. First-time filings for jobless insurance declined by 3,000 to 420,000 in the week ended Dec. 18, matching the median forecast in a Bloomberg News survey, Labor Department figures showed today in Washington. Those already collecting benefits fell in the previous week to 4.06 million. The four-week moving average, a less volatile measure than the weekly claims figures, rose to 426,000 last week from 423,500, today’s data showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 3.2 percent in the week ended Dec. 11, the lowest since Nov. 22, 2008, from 3.3 percent in the prior week, today’s report showed. Forty-three states and territories reported a decline in claims, while 10 reported an increase.
Obama Said Ready to Renominate Diamond to Fed Board. President Barack Obama will re- nominate Peter Diamond to the Federal Reserve Board after the Nobel laureate economist failed to gain U.S. Senate approval, a White House official said.
Taxes and the Top Percentile Myth. A 2008 OECD study of leading economies found that 'taxation is most progressively distributed in the United States.' More so than Sweden or France.
Alabama Town's Failed Pension Is a Warning. This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry. Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
Computers That Trade on the News. Math-loving traders are using powerful computers to speed-read news reports, editorials, company Web sites, blog posts and even Twitter messages — and then letting the machines decide what it all means for the markets.
Washington Post:
Rush to Foreclose by Fannie, Freddie Helped Feed Problems With Legal Paperwork. As the housing market came crashing down in 2008, the giant mortgage company Fannie Mae took an unprecedented step to help tackle the rising tide of foreclosures. It named an exclusive group of law firms that would help rapidly carry out the unsavory task of filing legal paperwork to remove homeowners from their homes. Today, problems with documents handled by firms on Fannie's list - and a similar one created by its smaller rival Freddie Mac - are at the heart of federal and state probes over faulty foreclosure practices that now threaten to further undermine the housing market.
Dallas Morning News:
Dallas Hedge Fund Suing Over 'Flash Crash' Losses. A small Dallas hedge fund firm is suing three Chicago-based trading companies, including hedge fund giant Citadel, for losses sustained during the "flash crash" on May 6. GovPlus Master Fund LP and GovPlus Fund AI LP, which are managed by Dallas-based financial firm NorCap, say the Chicagofunds should give back $3.15 million that the GovPlus funds paid for put options. The trades occurred as financial markets were going haywire, with many prices plunging and then recovering in a brief period of afternoon trading. The prices the GovPlus funds paid were probably based on "some form of computer glitch" that led to erroneous prices, the lawsuit said. The suit was filed this week in state court in Illinois against Citadel, Wolverine Trading LLC and Chicago Trading Co.
Houston Chronicle:
EPA Takes Over Texas Pollution Permits. The U.S. Environmental Protection Agency today officially took away from state regulators the permitting process for air quality on major industrial facilities. The move was praised by environmentalists, but, criticized by industry and Gov. Rick Perry's office. EPA Regional Administrator Al Armendariz in a letter to industry said that as of Jan. 2, 2011, all greenhouse gas air quality permits that are pending at the Texas Commission on Environmental Quality or may be filed in the near future will now be reviewed and issued by the EPA. Armendariz said the TCEQ has estimated that 167 projects in Texas will be affected.
Commentary Magazine:
The Democrats and Health Care. The passage of Barack Obama’s health-care legislation in the spring of 2010 proved profoundly injurious to the president and his party in the November midterm elections. Studies conducted at Stanford University and the University of Minnesota agree that at least one-third of the 63-seat Democratic loss in the House of Representatives can be attributed to the electorate’s negative reaction to the health-care bill—which suggests that the legislation was responsible for taking a bad election and turning it into a historic disaster. Many Democrats are sure to keep telling themselves, as President Obama has, that “the outcome was a good one.” That conviction should comfort them as they continue to deal with the consequences arising from the intensity of the electorate’s rejection. The Pyrrhic victory Democrats secured for themselves in March 2010 may prove not to have been a victory at all but rather an ever-roiling, ongoing, and recurring act of political and ideological self-destruction.
Reuters:
Fitch Cuts Portugal Rating One Notch to A-Plus. In the latest blow to the euro zone, Fitch Ratings on Thursday downgraded Portugal, citing burgeoning debt levels and a tough financing environment. Fitch downgraded Portugal's long-term and local currency ratings by one notch to A-plus, with a negative outlook, adding to a drumbeat of negative news on sovereign debt in Europe.
US Leading Economic Growth Gauge Rises to 32-Week High-ECRI. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 128.0 in the week ending Dec. 10 from a revised 127.3 the previous week. The previous week was originally reported at 127.4. That was the highest since May 7, when it stood at 131.9. The index's annualized growth rate rose to 0.8 percent from minus 0.1 percent a week earlier. That was the highest since May 21, 2010, when it was 4.9 percent.
Xinhua:
China to Carry Out New House Price Calculation Scheme in 2011. China's statistics bureau will change the way it calculates housing sales prices next year, citing Ma Jiantang, the head of the agency. The bureau released a draft plan in September for the system which said prices, floor areas and sales of new housing in 35 major cities will be based on data from local real-estate departments not independent research.
DigiTimes:
China LED Makers to Install More MOCVD Equipment in 2011. China's LED industry is expected to install 700-800 units of MOCVD equipment in 2011 compared to 330 units installed in 2010, a trend which is likely to enable China's LED industry to catch up with Taiwan in terms of MOCVD production capacity, according to industry sources. One China-based LED maker has reportedly even given an order for a total of 400-500 MOCVD machines to Germany-based Aixtron(AIXG), pushing the delivery lead time for shipments of MOCVD equipment in the China market to the third quarter of 2011, the sources added. However, the threat of China-based LED chip companies, with the exception of Sanan Optoelectronics, to their rivals in Taiwan will be limited in the short-term due to insufficient supply of LED epitaxial wafers in China, the sources commented. Sanan Optoelectronics, currently the largest LED chipmaker in China, will have a total of 40 MOCVD machines by the end of 2010 and will expand the lineup to 100 units in 2011, a capacity which will be equivalent to the installed capacity of Taiwan-based Formosa Epitaxy, the sources noted. Number two maker Xiamen Changelight will increase the number of its MOCVD equipment from nine to 26, while the third-ranked maker Inspur Huaguang Optoelectronics will add another 16 MOCVD machines into its current lineup of 14, the sources indicated.
Durable Goods Orders for November are estimated to fall -.5% versus a -3.3% decline in October.
Durables Ext Transports for November are estimated to rise +1.8% versus a -2.7% decline in October.
Cap Goods Orders Non-defense Ex Air for November are estimated to rise +3.1% versus a -4.5% decline in October.
Personal Income for November is estimated to rise +.2% versus a +.5% gain in October.
Personal Spending for November is estimated to rise +.5% versus a +.4% gain in October.
PCE Core for November is estimated to rise +.1% versus unch. in October.
Initial Jobless Claims for last week are estimated at 420K versus 420K the prior week.
Continuing Claims are estimated to fall to 4100K versus 4135K prior.
9:55 am EST
Final Univ. of Mich. Consumer Confidence for December is estimated to rise to 74.5 versus a prior estimate of 74.2.
10:00 am EST
New Home Sales for November are estimated to rise to 300K versus 283K in October.
Upcoming Splits
(ABV) 5-for-1
Other Potential Market Movers
The weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 84.94 -.37%
European Financial Sector CDS Index 158.44 bps +3.80%
Western Europe Sovereign Debt CDS Index 194.50 bps +1.04%
Emerging Market CDS Index 176.28 bps -15.81%
2-Year Swap Spread 23.0 +2 bps
TED Spread 17.0 -1 bps
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 273.0 +2 bps
China Import Iron Ore Spot $171.0/Metric Tonne +.65%
Citi US Economic Surprise Index +14.30 -3.3 points
10-Year TIPS Spread 2.31% +3 bps
Overseas Futures:
Nikkei Futures: Indicating +40 open in Japan
DAX Futures: Indicating +26 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical and Retail long positions
Disclosed Trades: None of note
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades slightly higher despite recent stock gains, some earnings disappointments and rising eurozone sovereign debt angst. On the positive side, Defense, Disk Drive, Bank, Construction, Homebuilding and Education shares are especially strong, rising more than 1.0%. (IYR)/(XLF) have outperformed throughout the day again. The S&P GSCI Ag Spot Index is rising another +.5% and is very close to its record high set in Feb. 2008. Lumber is also rising +1.5%. The 10-year yield is stable again. On the negative side, Airline, Gaming and Steel shares are under mild pressure. The Greece sovereign cds is climbing +3.85% to 1,020.58 bps, the UK sovereign cds is climbing +4.86% to 72.41 bps and the Italy sovereign cds is rising +2.35% to 225.35 bps. The Euro Financial Sector CDS Index is rising to the highest level since mid-June and the Western Europe Sovereign CDS Index remains very near its record high set last month, which is also a big negative. The broad market continues to display exceptional resiliency as negatives continue to be ignored. The slow grind higher in the major averages to new 52-week highs could result in a short-term spike higher in stocks before any meaningful pullback commences as shorts throw in the towel and underperforming longs come in to finish out the year. A short-covering rally in the euro could be a potential short-term upside equity catalyst. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, less economic fear, diminishing financial sector pessimism, short-covering, technical buying, buyout speculation and investment manager performance angst.
