North American Investment Grade CDS Index 82.66 -.14%
European Financial Sector CDS Index 148.54 bps -2.28%
Western Europe Sovereign Debt CDS Index 201.75 bps -2.30%
Emerging Market CDS Index 194.22 -.51%
2-Year Swap Spread 20.0 +1 bp
TED Spread 18.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 273.0 unch.
China Import Iron Ore Spot $171.0/Metric Tonne +.56%
Citi US Economic Surprise Index +14.90 +.3 point
10-Year TIPS Spread 2.34% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +12 open in Japan
DAX Futures: Indicating +12 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical and Retail long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite more positive economic data, equity strength overseas and less euro sovereign debt angst. On the positive side, Hospital, Drug, Wireless, Telecom, Networking and Utility shares shares are especially strong, rising more than .5%. The 10-year yield is stable despite today's positive economic data. The euro currency continues to trade poorly and gold is falling -2.4%. Oil is near session lows, down -2.6%, despite strong commodity fund inflows and positive global economic data. The China sovereign cds is declining -4.85% to 65.58 bps, the Russia sovereign cds is falling -6.38% to 137.0 bps and the US sovereign cds is declining -3.71% to 39.96 bps. On the negative side, Education, Restaurant, REIT, Construction and Oil Service shares are under meaningful pressure, falling more than 2.0%. Small-caps are underperforming. (IYR) has traded poorly throughout the day. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is still near a record high, despite today's declines. Lumber is falling -1.94% and copper is down -1.54%. Many small-cap stocks that had huge runs last year are under significant pressure today, along with commodities. Many underperforming hedge funds likely increased exposure in these areas during 4Q in an effort to catch the S&P 500. These funds are likely unwinding some of these bets now. Last year's sharp move higher in most commodities in the face of a flat US Dollar Index was somewhat unusual. I suspect that unless the euro currency regains its footing in a meaningful way that performance by commodities is unlikely to be repeated this year. The broad market continues to trade well as it slowly grinds higher and the bears remain unable to gain any traction on potential negative catalysts. I expect US stocks to trade mixed-to-higher into the close from current levels on equity fund inflows, technical buying, stable long-term rates, less financial sector pessimism, more economic optimism and buyout speculation.
Corporate Bond Risk Falls in Europe on Economic Growth Optimism. The cost of insuring against default on European corporate bonds fell on speculation economic growth is accelerating. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings was trading at 415 basis points, the lowest level since April 21, according to JPMorgan Chase & Co. at 11:30 a.m. in London. That’s down from 436 basis points on Dec. 31. “We are opening the new year with risk appetite on a strong footing,” said Greg Venizelos, a credit strategist at BNP Paribas SA in London. “The bullishness is coming from both Asia and the U.S. on better growth expectations.” The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 3.75 basis points to 100.75, JPMorgan prices show. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers declined 9 basis points to 169, and the subordinated index fell 21 to 323. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 9 basis points to 200, CMA prices show.
Some Fed Officials Had Fairly High Threshold to Alter QE2 Size. Federal Reserve policy makers said that improvements in the economy didn’t meet the threshold for scaling back their plans to purchase $600 billion in bonds. “While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program, and some noted that more time was needed to accumulate information on the economy before considering any adjustment,” the Fed said in minutes of its Dec. 14 policy meeting, released today in Washington. The Fed’s Open Market Committee “emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments,” according to the minutes. “However, some indicated that they had a fairly high threshold for making changes to the program,” the minutes added. The minutes show that with growth picking up since the easing program began, Fed officials remain focused on an unemployment rate forecast to be high for some time and an inflation rate that is lower than the Fed prefers. During the meeting, Fed officials affirmed their pledge to purchase $600 billion in Treasury securities through June.
Orders to U.S. Factories Unexpectedly Increased in November. American factories unexpectedly received more orders in November, signaling that gains in consumer spending, business investment and exports will sustain the manufacturing recovery. The 0.7 percent increase in bookings topped the median forecast of economists surveyed by Bloomberg News which called for a 0.1 percent drop, figures from the Commerce Department showed today in Washington. Orders for capital goods like computers rebounded after falling in October. Orders for durable goods, which make up over half of total factory demand, fell 0.3 percent, less than the 1.3 percent drop estimated by the government Dec. 23, today’s report showed. Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, rose 2.6 percent after a 3.2 percent drop in October that was smaller than previously estimated. Demand for computers and electronics climbed 6.3 percent, the most since February 2009. Shipments of such equipment, which are used in calculating gross domestic product, increased 1.1 percent, better than the 1 percent gain estimated in last month’s durable goods report.
GM(GM), Ford(F), Chrysler U.S. December Sales Top Analyst Estimates. GM’s deliveries in the month rose 7.5 percent to 224,185, the Detroit-based automaker said today in a statement. The largest U.S. automaker was expected to post a 4.3 percent sales increase, the average of four analysts’ estimates compiled by Bloomberg. Ford’s sales gained 3.5 percent, topping the 3.3 percent average estimate of five analysts. “This is a market that’s coming back significantly,” said Rebecca Lindland, an analyst with IHS Automotive, a researcher in Lexington, Massachusetts. “And with really strong products coming from GM, Ford and Chrysler, there’s a lot of opportunity for change in the marketplace.”
Too-Big-to-Fail Banks Face New Limits Under EU Plan. The European Union may give regulators power to block new products and limit trading risks at banks deemed too big to fail, as part of plans to protect public finances from future financial crises. National regulators of cross-border banks may be able to require “changes to legal or operational structures” if the lender would need “extraordinary public financial support” during a crisis, according to draft proposals obtained by Bloomberg News.
BP(BP) Gains on Report Shell Considered Bid; Spill Costs Played Down. BP Plc jumped the most in six months after a report that Royal Dutch Shell Plc considered a takeover bid during the oil spill and the lawyer in charge of the $20 billion compensation fund said only half the cash may be needed. Shell is still interested in a merger, the Daily Mail newspaper reported today, citing unidentified people close to the company. Kenneth Feinberg, who is administering the fund, said in a Dec. 31 Bloomberg Television interview that $10 billion may be “more than enough to pay all the claims.” BP advanced 5.9 percent, the most since July 12, to 492.90 pence as of the 4:30 p.m. close in London.
Gold Futures Decline Most in Seven Weeks as Equities Rally; Silver Plunges. Gold fell the most in six months on speculation that a global recovery will curb demand for the metal as a haven asset. Silver plunged. Equities gained worldwide. The dollar strengthened against the Japanese yen on speculation that the U.S. recovery will gather momentum. Gold posted a 10th straight annual gain in 2010, rising 30 percent and outperforming stocks and bonds. The metal reached a record $1,432.50 an ounce on Dec. 7. “Some of the flight-to-quality bid is coming out of gold,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “Some of the fast money is selling gold to begin the year. People are expecting equities to rally.” Gold futures for February delivery fell $40.10, or 2.8 percent, to $1,382.80 at 10:43 a.m. on the Comex in New York. A close at that price would mark the biggest decline for a most- active contract since July 1.
Crude Oil Futures Tumble in N.Y. After Yesterday's Surge to 27-Month High. Crude oil fell from the highest level in 27 months in New York as commodities including precious metals tumbled. Futures dropped the most in seven weeks amid speculation that a global economic recovery will boost investments in currencies and equities. A stronger dollar reduces demand for commodities. Crude for February delivery fell $3.12, or 3.4 percent, to $88.43 a barrel at 12:52 p.m. on thePart of what the commodities rally was all about was they were the currency of last resort in terms of storing value,” said John Kilduff, a partner at Again Capital LLC in New York. “Economic prospects are helping the dollar.”New York Mercantile Exchange, the biggest decline since Nov. 12.
Sales at U.S. Retailers Increased 3.6% Last Week. Sales at U.S. retailers rose 3.6 percent last week from a year earlier, as some shoppers returned to stores to take advantage of post-Christmas discounts, dodging a snowstorm that assailed the East Coast.Sales for the week ended Jan. 1 rose 0.4 percent from the previous week, according to a chain-store sales index released today by New York-based International Council of Shopping Centers and Goldman Sachs Group Inc. That compared with a 1 percent gain a week earlier.
Bloomberg Businessweek:
In the Works: A Google(GOOG) Mobile Payment Service? Google (GOOG) is considering building a payment and advertising service that would let users buy milk and bread by tapping or waving their mobile phones against a register at checkout, two people familiar with the plans say. The service may make its debut this year, say the two, who requested anonymity because the plans haven't been announced.
CNBC:
Regional Banks to See Loan Growth: Credit Suisse. U.S. regional banks could see better loan growth in 2011 and 2012 as they resecuritise and sell off legacy commercial mortgage-backed securities (CMBS) to private equity funds and others, Credit Suisse said.
G.O.P. Sets Up Huge Target for Budget Ax. The incoming Republican majority in the House is moving to make good on its promise to cut $100 billion from domestic spending this year, a goal eagerly backed by conservatives but one carrying substantial political and economic risks. House Republican leaders are so far not specifying which programs would bear the brunt of budget cutting, only what would escape it: spending for the military, domestic security and veterans. Even if adopted by the House, the Republicans’ budget is unlikely to be enacted in anything like the scale they envision, since Democrats retain a majority in the Senate and President Obama could veto annual appropriations bills making the reductions. But the effort is more than symbolic: in particular it could give House Republicans increased leverage in budget negotiations with the White House this winter and spring, when the administration must get Congress to raise the federal debt limit or risk a government financing crisis.
Strained States Turning to Laws to Curb Labor Unions. Faced with growing budget deficits and restive taxpayers, elected officials from Maine to Alabama, Ohio to Arizona, are pushing new legislation to limit the power of labor unions, particularly those representing government workers, in collective bargaining and politics. State officials from both parties are wrestling with ways to curb the salaries and pensions of government employees, which typically make up a significant percentage of state budgets. On Wednesday, for example, New York’s new Democratic governor, Andrew M. Cuomo, is expected to call for a one-year salary freeze for state workers, a move that would save $200 million to $400 million and challenge labor’s traditional clout in Albany. But in some cases — mostly in states with Republican governors and Republican statehouse majorities — officials are seeking more far-reaching, structural changes that would weaken the bargaining power and political influence of unions, including private sector ones.
CNNMoney:
Is Fannie Bailing Out The Banks? Financial stocks just caught fire. Someone must be getting bailed out, right? Why yes, say critics of the giant banks.
Apple's(AAPL) Holiday iPhone, iPad and Mac Sales Stronger Than Expected - Report. Whitmore said demand for the iPad, which remains "largely unchallenged" in the market, is tracking ahead of his model, and has accordingly increased sales estimates from 6 million to 6.5 million for the fourth quarter of calendar 2010. He also sees Apple selling 28 million iPads in 2011, up from his previous estimate of 22 million. "Apple continues to benefit from the strongest product offering in its history and the strong double-barreled product cycle is driving massive global demand for iPads and iPhones," he wrote. "Both categories are benefiting from additional carriers, international expansion, and limited competition." The analyst also upped his iPhone sales projections for the holiday period to 16 million, up a million from the previous estimate of 15 million. He now expects Apple to sell 60 million iPhones in calendar year 2011, up from 55 million. Whitmore's estimates do not, however, include the prospect of a Verizon iPhone, widely reported to become available in early 2011. He believes that the addition of Verizon as a U.S. carrier could bump Apple's iPhone sales up by 5 million to 7 million units. "We expect a CDMA based iPhone to be a significant positive for AAPL with limited cannibalization at AT&T," he said. "Our DB colleague Brett Feldman, who covers Telecom Services, estimates that Verizon will add roughly 15M iPhones in 2011 with 6M cannibalized from AT&T."
Benzinga:
Qualcomm(QCOM) Near Deal for Atheros(ATHR). The New York Times DealBook is reporting that Qualcomm (NASDAQ: QCOM) is near a deal to by Atheros Communications, Inc. (NASDAQ: ATHR). Qualcomm would pay about $45 per share for the company, or $3.5 billion in cash. A deal could be announced as soon as tomorrow.
Media Beat:
Google's(GOOG) Chrome Browser Hits 10% Market Share. While Microsoft’s Internet Explorer is still the dominant Web browser, Google’s Chrome has been growing consistently, as is evident from a new report from NetApplications. The report shows that Chrome’s slice of the market more than doubled during the past year, from 4.63 percent in December 2009 to 9.98 percent in December 2010.
Politico:
Darrell Issa Asks Business: Tell Me What to Change. Rep. Darrell Issa (R-Calif.) wants the oil industry, drug manufacturers and other trade groups and companies to tell him which Obama administration regulations to target this year. The incoming chairman of the House Oversight and Government Reform Committee - in letters sent to more than 150 trade associations, companies and think tanks last month - requested a list of existing and proposed regulations that would harm job growth.
Reuters:
Interview - Greece Not Discussing Debt Restructuring - Finmin. Greece is sticking to its plan to return to bond markets sometime in 2011, depending on market conditions, and also issue "diaspora" bonds to Greeks abroad, Papaconstantinou said. He said discussions with China on buying Greek bonds, as agreed during a visit to Athens by Chinese Prime Minister Wen Jiabao in October, were progressing but could say nothing about the amount or timing of any purchases. The EU would discuss extending the repayment term of the emergency loan to Greece in January, to avoid a hump in 2014-15 and be more in line with Ireland, the second euro zone country to request help. "We would like the lengthening to cover the entire (bailout) not only the part that has not been disbursed but also the part that has been disbursed. This is something that the Commission is positive about, we have to wait for the final decision by the Eurogroup," Papaconstantinou said. He added he was confident the EU would come to an agreement on the issue of joint euro zone bonds in the near future and that the bloc would make the right decisions to exit the debt crisis. E-bonds would effectively mean all 17 euro zone countries financing a portion of their debt together and sharing a credit rating, something Germany has strongly opposed.
Le Figaro:
French police and intelligence officers are preparing for possible attacks on Coptic churches in and around Paris, citing intelligence officials. Lists of Coptic congregations in the Ile-de-France region have been circulated on websites associated with Islamic extremists.
De Telegraaf:
The Dutch National Coordiator for Counter-Terrorism asked police to keep a watchful eye on Coptic churches in the Netherlands, citing a spokesman for the agency. The measures come in response to the Jan. 1 attack on a Coptic church in Alexandria, Egypt, and are unrelated to lists circulating on the Internet of possible terror targets, citing the agency. Coptic churches in Amsterdam, Utrecht and Eindhoven are on the lists.
Financial Times Deutschland:
Amazon.com(AMZN) is accelerating expansion in Europe to boost sales. Amazon is hiring workers at its European headquarters in Luxembourg to speed up expansion. The company also plans to add a second logistics center in the western German state of North Rhine-Westphalia this year to serve customers in neighboring Belgium and the Netherlands.
Sueddeutsche Zeitung:
Pacific Investment Management Co. has stopped buying the government bonds of Europe's so-called peripheral countries, Andrew Bosomworth, a Munich-based fund manager at Pimco, said. "In light of the elevated credit risk of the three countries Portugal, Greece, Ireland, we're not putting in any more money there; we withdrew most of the month," Bosomworth said. "We're also not investing new money in countries with contagion risks even if they're solvent like Spain and Italy; we underweight them considerably."
Pimco, Loomis Favor Convertible Bonds as Stocks Rise. Pacific Investment Management Co. and Loomis Sayles & Co. are betting convertible debt will rally further this year as stocks rise and Treasuries fall. Bonds that may be exchanged for shares returned 16.8 percent last year, beating Treasuries, benchmark U.S. stock indexes, high-yield and investment-grade corporate notes and municipal debt, Bank of America Merrill Lynch index data show. Fixed-income investors are turning to convertibles amid signs the U.S. economy is improving.
U.S. Treasury Said to Plan Sale of $2.5 Billion in Ally TruPS This Month. The U.S. TreasuryDepartment may sell as much as $2.5 billion of Ally Financial Inc. trust-preferred securities this month as it looks to recoup bailout funds for taxpayers, a person with direct knowledge of the plan said. Treasury will look to sell at least $1 billion of the securities to investors in January or “shortly after” fourth- quarter earnings are announced in February, said the person, who asked not be named because the plans are private. Timing of a sale depends on the state of capital markets, the person said.
Hedge Funds Increase Bullish Crude Bets to Four-Year High: Energy Markets. Hedge funds raised bullish bets on crude oil to the highest level in more than four years on speculation that futures will climb as the U.S. recovers from the deepest recession since the 1930s. The funds and other large speculators increased net-long positions, or wagers on rising prices, by 4.6 percent in the seven days ended Dec. 28, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the top total in records going back to June 2006.
Australia Predicts More Rains as Floods Cut Off Towns. Flooding is set to worsen in the Australian state of Queensland in the next 48 hours, cutting off tens of thousands of people as the military is mobilized to airlift supplies and the U.S. offers assistance. Rockhampton, home to 75,000 people about 500 kilometers (300 miles) north of the state capital, Brisbane, will lose its last road access as the Fitzroy river peaks, according to the state government. Towns across Queensland have been evacuated, at least two people have died and about 73 percent of the state’s coal output is disrupted as flooding spreads over an area the size of France and Germany.
CIC Backs Carlyle-Owned Manhattan Tower in U.S. Property Push. China Investment Corp. helped refinance a Manhattan office tower co-owned by Carlyle Group last year, another sign that the $300 billion sovereign wealth fund is stepping up its U.S. real estate investments. The fund, known as CIC, joined forces with AREA Real Estate Finance Corp. of New York to buy an unspecified preferred equity stake in 650 Madison Ave., the 27-story building that is headquarters to Polo Ralph Lauren Corp., said Bradford Wildauer, AREA’s president. CIC also owns 35 percent of Industrial & Commercial Bank of China Ltd., one of two lenders that provided Carlyle with a new first mortgage on the property in June. “CIC is very bullish on investing in real estate in the U.S.,”as are major Chinese banks, Jeffrey Lenobel, chairman of the real estate group at the New York law firm Schulte Roth & Zabel LLP, said in a telephone interview. “There is every reason to think you will see them together more often.” Chinese purchases jumped to $127 million last year from $18 million in 2009, Real Capital says, including a $46 million deal by SouFun Holdings Ltd. of Beijing to buy a Lower Manhattan building once owned by insurer American International Group Inc. The report doesn’t include purchases through property funds, a route that Chinese buyers prefer, said Ben Carlos Thypin, a senior market analyst at Real Capital. “They are investing through conduits a lot of the time,” Thypin said. “The fund investment market is much more opaque.” CIC acquired a 7.6 percent stake in General Growth Properties Inc. in November through a fund manager that participated in the bankruptcy reorganization for the second- largest U.S. mall owner. A CIC subsidiary holds a controlling stake in Beijing’s Bank of China Ltd., which agreed in November to lend investors $800 million to refinance an office building on Manhattan’s Park Avenue. The Madison Avenue property may represent CIC’s first publicly disclosed direct investment in a North American office building, according to Thypin.
Goldman(GS) Investment in Facebook May Draw SEC Scrutiny. Goldman Sachs Group Inc.’s plan to offer clients up to $1.5 billion in Facebook Inc. equity may invite U.S. regulators to take a closer look at whether the owner of the world’s most popular social-networking site is circumventing disclosure rules, securities lawyers said. The Securities and Exchange Commission, whose rules require any company with more than 499 investors to disclose financial information, is already scrutinizing the market for trading shares of closely held companies including Facebook, according to a person familiar with the inquiry, who declined to be identified because the matter isn’t public. Goldman Sachs invested $450 million in Facebook and is planning to create a special purpose vehicle for its clients to make additional investments worth as much as $1.5 billion, according to two people familiar with the matter who spoke on condition of anonymity because the deal is private. Some private companies avoid crossing the disclosure threshold when investors’ funds are channeled through a single entity, such as a private equity firm or hedge fund.
Obama Said to Consider William Daley for Top White House Post. President Barack Obama is considering naming William Daley, a JPMorgan Chase & Co. executive and former U.S. Commerce secretary, to a high-level White House post, possibly as his chief of staff, people familiar with the matter said. Such a move, which is still under discussion and which White House officials wouldn’t confirm, would bring a Washington veteran -- and someone with strong business ties -- into the administration as Obama enters the second half of his term.
Coptic Pope Says Egypt Must Address Christians' Complaints, Ease Tensions. Pope Shenouda III, the leader of Egypt’s Coptic Church, pleaded for calm among his followers as riots raged for the third straight day after a bomb attack outside a church killed 21 people. The pope, in an interview with Egypt’s state-run television late yesterday, also called on the government of the Muslim- dominated country to address the grievances of Copts, the largest religious minority in the Middle East. Thousands of Copts have taken to the streets of Egypt in the aftermath of the Jan. 1 attack in the Mediterranean city of Alexandria, demanding government protection and protesting what they describe as the state’s negligence of their rights.
Bank of America(BAC) Deal on Loan-Repurchase Demands Sets 'Template' for Banks. Bank of America Corp.’s agreement to settle Fannie Mae and Freddie Mac’s demands it buy back billions of dollars in faulty loans may pave the way for U.S. lenders to resolve similar disputes with the government-sponsored entities, easing investors’ concerns that costs may surge.
Wall Street Journal:
Fresh Signs of Life in Office Market. The amount of occupied U.S. office space increased for the first time in nearly three years during the fourth quarter of 2010 as more companies that had been postponing real-estate decisions got back into the leasing market. Average office rents also rose by 0.2%, to $22.09 per square foot, registering their first uptick since the second quarter of 2008, according to property-research firm Reis Inc. While the 79 metropolitan areas tracked by Reis vary greatly, the national trend means that in many regions the balance of power is shifting to landlords from tenants.
Fed Likely to Add New Dealers for Treasury Market. After a hiatus of more than one year, the Federal Reserve is likely to expand a select group of dealers to help with hefty Treasury debt sales and the central bank’s monetary-policy operations, according to traders and dealers familiar with the matter. Demand for safe-haven Treasurys has eased over the past couple of months as optimism over the economic outlook sparked more buying interest in riskier assets such as stocks. That means dealers need to play a bigger role in underwriting Treasury sales to avoid the risks of weak auctions. Lackluster participation by primary dealers could force the government to pay higher interest rates to issue debt, which in turn would hurt the broader economy by raising rates for consumers and companies.
Goldman(GS) Clients Jockey for Shot at Facebook Shares. Wealthy clients of Goldman Sachs Group Inc. began jockeying for a piece of the deal struck by the securities firm to invest in social-networking company Facebook Inc., according to people familiar with the situation. The agreement by Goldman to invest $500 million in Facebook along with Digital Sky Technologies of Russia ignited a frenzy of phone calls and email by clients in the private wealth-management division at Goldman. Those clients got a memo from Goldman offering them the opportunity to buy equity in Facebook, with a minimum investment of $2 million, these people said.
Cuomo Targeting Medicaid Spending. Gov. Andrew Cuomo is aiming to reduce the state's Medicaid spending by billions of dollars, exceeding the size of cuts to the program proposed in past years, according to individuals with knowledge of his budget. The Cuomo administration is considering a cut of about $2.1 billion out of the state's projected spending on Medicaid in the upcoming fiscal year. With federal matching funds, the cut comes to more than $4 billion. That's close to twice the reduction in spending proposed by Gov. Eliot Spitzer in 2007. Such a cut would effectively freeze Medicaid spending at the current year's level. But because the state is set to receive far less in federal funds, as the stimulus expires, its share of Medicaid costs would still grow by more than $3 billion, a 30% increase. To further alleviate the burden, the Cuomo administration is likely to lobby for more federal aid, possibly through a waiver agreement, according to an individual familiar with the governor's health-care agenda.
Lenders Shift Some Loan Costs to Big Borrowers. Banks feeling squeezed by rising regulatory costs are trying to pass along the pain to big corporate borrowers. In the past several weeks, lenders such as J.P. Morgan Chase & Co. and Bank of America Corp. have begun including in loan documents language that will help banks shift to their large borrowers additional costs triggered by the Dodd-Frank financial-overhaul law. The changes, disclosed in securities filings by companies from insurer American International Group Inc. to refinery and convenience-store owner Western Refining Inc., reflect guidelines by a trade group of banks and loan investors called the Loan Syndications and Trading Association that might be finalized by February but already are appearing in deal documents. Under the guidelines, likely to be followed by most banks making corporate loans, lenders can require borrowers to take a financial hit for costs resulting from the Dodd-Frank law "regardless of the date" when the cost-triggering change occurs. The clause doesn't specify whether the new costs would be passed along as a fee or added interest costs, but it says borrowers would pay the lender "such additional amount" to "compensate" that institution.
Illinois Attempts to Link Teacher Tenure to Results. Illinois lawmakers are considering sweeping legislation that would link teacher tenure to student test scores, make it easier to fire ineffective teachers and curb teachers' right to strike. The measure, debated during a Senate panel hearing Monday, moves Illinois to the forefront of states' efforts to hold teachers more accountable for student performance, while taking on the powerful teacher unions, which often oppose such changes.
Auto-Bailout Planner in Line for Post. President Barack Obama is considering naming one of the architects of the Detroit auto industry bailout, Ron Bloom, to a new manufacturing policy post at the White House. The position would report to the White House chief of staff and to the director of the National Economic Council, according to people familiar with the deliberations. The creation of the post will likely be announced soon, possibly when Mr. Obama names his next NEC director.
Mining Firms Dig Deeper As Worker Costs Escalate. Demand for commodities has boosted demand for miners around the world, prompting warnings from companies that a shortage could slow growth and increase costs.
Labor's Coming Class War. Private-sector union workers begin to notice that their job prospects are at risk from public-employee union contracts.
Congress Rediscovers the Constitution. The House Republican majority has said it will require members to cite the specific authority for any bill they introduce.
Obama Eyes Ex-Clinton Aide as Top Economic Adviser. A trusted aide with first-hand experience negotiating with Republicans has emerged as the favorite to become President Barack Obama's new top economic policy adviser, Democratic sources said on Monday. Several sources close to the deliberations said Gene Sperling, a Clinton administration veteran, has gained traction in the last few weeks as a potential successor to Larry Summers, who is departing as director of the National Economic Council.
Iran Invites Some Nations, Not U.S., for Nuclear Tour. Iran has invited Russia, China and several European Union members to visit its nuclear facilities this month, but pointedly snubbed the United States, European diplomats said on Monday. The invitation — which seemed calculated to divide the alliance of nations opposed to Iran’s nuclear ambitions before the next round of negotiations over the program — was swiftly dismissed by the United States. “It’s a clever ploy, but it’s not a substitute for Iran’s responsibilities to the I.A.E.A.,” said the State Department spokesman, Philip J. Crowley, referring to the International Atomic Energy Agency, which has been locked in an increasingly tense standoff with the Iranian government over its enrichment of uranium. “It won’t draw international attention away from the issues regarding Iran’s nuclear program,” Mr. Crowley added, noting that its enrichment activities violated six United Nations Security Council resolutions. The European diplomats said the invitation was not likely to be accepted, if at all, until after the next round of negotiations, expected to be held in Istanbul at the end of this month.
UAW Reveals Ideas to Try to Level Playing Field. The UAW released a set of principles today that it plans to use as it renews its effort to organize assembly plants in the U.S. operated by Asian and German automakers. The document, called “UAW Principles for Fair Union Elections,” outlines 11 ideals that are designed to level the playing field between the UAW and an employer during a union campaign and election. By signing the principles, both the union and the employer would “demonstrate their openness to change by agreeing to the framework established in these principles,” the UAW said in the document released today. The principles include an agreement that the ability to join a union is a “fundamental human right.” In addition, they say that during a campaign both the union and the employer would agree to refrain from intimidation or threats and commit the employer to allowing equal access to employees to discuss union representation.
The Detroit News:
House GOP Seeks Ford(F), Toyotal Input on Cutting Red Tape. The incoming chairman of the House Oversight and the Government Reform committee wants help from two automakers in cutting government red tape. Rep. Darrell Issa, R-Calif., sent a letter to more than 150 companies, trade associations and think tanks, asking for their help in looking at "proposed regulations that negatively impact the economy and jobs."The issue is of particular interest to the auto industry.
Politico:
House GOP to Vote on Health Repeal Next Week. The House will vote next week to repeal the new health care law, making good on a top-tier GOP campaign promise and setting up a showdown with President Barack Obama over his signature domestic policy achievement.Majority Leader-elect Eric Cantor (R-Va.) announced Monday the timeline for considering the repeal legislation: The bill posted Monday, the Rules Committee will meet Thursday, and the rule for the debate will be considered on the House floor Friday. The repeal vote will follow on Wednesday, Jan 12. The GOP repeal bill is only two pages long – a stark contrast to the 2,000-plus pages in the final health care legislation, a number that was cited repeatedly by Republicans as evidence the bill amounted to a massive government overreach. Aiming to link the rollback effort to job creation, Republicans named the bill “Repealing the Job-Killing Health Care Law Act.”
USA Today:
Companies Stash More Cash as Profits Increase. Companies are doing everything they can do to get rid of cash — short of hiring people — but the moola just keeps mounting. The typical ways companies burn off excess cash, such as boosting dividends, buying back their own stock and buying other companies, are rising. But none of these standard uses of cash are keeping up with swelling corporate earnings, resulting in an ever-increasing pile of cash. The largest U.S. companies in the Standard & Poor's 500 index are sitting on a record $902.4 billion in cash, up 10% from a year earlier, S&P says. That's expected to rise to another record when the sum is tallied for the end of 2010.
Web and Other Options Are Shaking Up How We Watch TV. If you gave or got a TV set, game console, Blu-ray player or DVR for the holidays, you might become the kind of person who scares executives who run movie and television production studios, broadcast and cable channels, and cable and satellite systems. Many of these devices now make it easy for people with home broadband networks to feed content from the Internet, including Hollywood movies and TV shows, onto their TVs.
Reuters:
U.S. to Detail Pentagon Savings, Cuts: Sources. Defense Secretary Robert Gates is expected to announce as early as Thursday about $100 billion in savings for the Pentagon and cuts to some weapons programs, sources said on Monday.
China Securities Journal:
Some southern Chinese cities including Fuzhou, Xiamen, Haikou and Wenzhou have extended limits on home purchases beyond the end of 2010. The cities had previously limited the number of homes residents could buy until the end of last year after the central government stepped up measures to cool prices, without saying when the measures might end.
Century Weekly:
China may delay a property tax because because of disputes among government departments, citing an unidentified official close to the Ministry of Finance and state tax bureau.
Evening Recommendations Citigroup:
Reiterated Buy on (DO), target $80.
Janney Montgomery:
Rated (DKS) Buy, target $44.
Morgan Keegan:
Rated (FIRE) Outperform, target $35.
Rated (FTNT) Outperform, target $40.
Night Trading
Asian equity indices are unch. to +1.25% on average.
Asia Ex-Japan Investment Grade CDS Index 99.0 -3.0 basis points.
Asia Pacific Sovereign CDS Index 99.5 -3.5 basis points.
Factory Orders for November are estimated to fall -.1% versus a -.9% decline in October.
2:00 pm EST
Minutes of FOMC Meeting
Afternoon:
Total Vehicle Sales for December are estimated to rise to 12.3M versus 12.26M in November.
Upcoming Splits
None of note
Other Potential Market Movers
The weekly retail sales reports, weekly ABC consumer confidence reading and the Citi Entertainment/Media/Telecom Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and technology shares in the region. I expect US stocks to open modestly lower 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 82.78 -2.82%
European Financial Sector CDS Index 152.10 bps -.32%
Western Europe Sovereign Debt CDS Index 206.50 bps +.81%
Emerging Market CDS Index 194.81 -3.37%
2-Year Swap Spread 19.0 -1 bp
TED Spread 18.0 unch.
Economic Gauges:
3-Month T-Bill Yield .12% unch.
Yield Curve 273.0 +3 bps
China Import Iron Ore Spot $170.10/Metric Tonne n/a
Citi US Economic Surprise Index +14.60 unch.
10-Year TIPS Spread 2.30% +2 bps
Overseas Futures:
Nikkei Futures: Indicating +127 open in Japan
DAX Futures: Indicating unch. open in Germany
Portfolio:
Higher: On gains in my Medical, Tech, Biotech, Retail and Ag long positions
Disclosed Trades: Added slightly to my (TFM) long, took profits in another long
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher despite recent stock gains, China inflation worries and euro sovereign/US municipal debt concerns. On the positive side, Airline, Homebuilding, HMO, Hospital, Bank, Disk Drive, Internet, Paper, Steel, Alt Energy and Coal shares are especially strong, rising more than 2.0%. Cyclicals and small-caps are strongly outperforming. Lumber is surging +3.1%. The Citi Asia Economic Surprise Index is jumping +10.3 points today to 25.0, which is the best level since mid-October. The 10-year yield is rising +4 bps, but is near session lows at 3.33%, despite recent positive economic data, the equity rally, the rise in commodities and "hot" prices paid readings. The euro currency is trading poorly today given the rise in equities and better manufacturing data out of Europe. On the negative side, Semi and Oil service shares are down slightly on the day. The Belgium sovereign cds is climbing +2.2% to 222.73 bps and the UK sovereign cds is jumping +5.53% to 76.41 bps. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is right at a record high, despite the recent bounce in the euro currency. The broad market continues to trade very well as it slowly grinds higher. I suspect it can run further in the short-run before a meaningful pullback commences later this quarter. I expect US stocks to trade mixed-to-higher into the close from current levels on equity fund inflows, short-covering, technical buying, stable long-term rates, less financial sector pessimism, more economic optimism and buyout speculation.
