Friday, January 21, 2011

Friday Watch

Posted by Gary .....at 12:41 AM

Evening Headlines
Bloomberg:
  • Campbell(CPB), General Mills(GIS) Credit-Default Swaps Advance on Higher Food Prices. The cost to protect food companies from Campbell Soup Co. to General Mills Inc. is climbing as record global food inflation eats away at profits. Credit-default swaps on Campbell’s debt increased to a record 70.8 basis points, according to data provider CMA. That’s up from as low as 31.9 basis points in March. Contracts on Yum! Brands Inc. jumped 13 basis points to 85.2, the highest since July, and those on General Mills Inc. gained 6.2 to 60.7. Rising food prices squeeze earnings, putting pressure on the stock, according to Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. A sinking share price may make a company’s management “more aggressive with financial engineering,” such as by boosting the stock with large share buybacks that may hurt its credit profile, he said. “If they can’t deliver on their earnings from operating performance, which is really what it’s all about, then they look to other measures,” Levington said. “From a creditor standpoint, it starts a troubling circular reference.”
  • China Swaps Climb to 2-Year High on Rate-Rise Prospects. China’s one-year interest-rate swaps climbed to the highest level since July 2008 as faster-than- forecast economic growth fueled speculation the central bank will raise borrowing costs in coming weeks. The contracts, which exchange the seven-day repurchase rate for fixed payments, gained 10 basis points to 3.64 percent as of 12:19 p.m. in Shanghai, according to data compiled by Bloomberg. The repo rate, a gauge of cash availability in the interbank market, almost tripled this week. The swaps market reflected bets for the benchmark one-year deposit rate to be raised by about a percentage point from 2.75 percent in 2011. The seven-day repurchase rate surged 4.74 percentage points in the past five days, the biggest weekly jump since October 2007. The rate climbed 1.27 percentage points to 7.3 percent today, according to the National Interbank Funding Center’s daily fixing in Shanghai. “Swaps will continue rising as money availability can only become tighter as the central bank seeks to drain liquidity by lifting banks’ reserve requirements to curb lending,” said Ye Yuzhang, an interest-rate trader at Industrial Bank Co. in Shanghai. “All Chinese officials are quite hawkish, acknowledging inflation concerns,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale in Hong Kong. He predicts benchmark rates will be raised by 50 basis points this quarter, 25 in the second and 25 in the final six months of 2011.
  • German Bond Yields Suffer as Bailout Costs Echo Reunification: Euro Credit. German yields are climbing as the potential cost of defending the euro project rises, mirroring the bond-market effects of reunifying the nation in the 1990s. “It’s impossible to say at this point how much Germany will have to pay but it could be large especially if our own cost of financing debt goes up,” said Oliver Holtemoeller, head of the macro-economic department at the Halle-based IWH institute. “If the crisis spreads to a larger country such as Spain, it’s going to be catastrophic.” European leaders are debating boosting the 750 billion-euro ($1 trillion) rescue fund used by Greece and Ireland as investors speculate more nations will need bailouts. “Germany is leading the bailout, and its contingent liabilities are increasing. It might not be the same magnitude in terms of costs, but there are likely to be big bills to pay.” Germany has pledged more cash than any other nation to bail out its debt-ridden neighbors. The country, which has one of the lowest deficits in the 17-member euro region, has earmarked 119.4 billion euros to the European Financial Stability Facility, amounting to 27 percent of the fund. With Europe’s debt crisis threatening to engulf Portugal and Spain, German Finance Minister Wolfgang Schaeuble, who headed the talks that led to German reunification, said this week that the euro area’s AAA rated states can’t be solely responsible for finding a solution. Kurt Lauk, president of the Christian Democratic Union’s Economic Council, said yesterday that European leaders should drop the “taboo” against debt restructuring. “Germany will end up paying for the vast majority of countries that are technically insolvent,” said Peter Geikie- Cobb, a portfolio manager at Thames River Capital. “I don’t think we say anything outrageous when we say European bondholders will ultimately have to take haircuts.” Thames River, part of London-based F&C Asset Management Plc which manages $172 billion of assets, began selling German bonds last month.
  • OPEC Pressured to Lift Output as Africa, Asia Oil at $100: Energy Markets. OPEC is facing growing calls to boost oil production as crude prices in Asia and Africa surpass $100 a barrel for the first time in two years. Nigeria’s Bonny Light grade, from which traders gauge the cost of West African oil, rose to $100.12 a barrel on Jan. 17, passing $100 for the first time since October 2008, according to data compiled by Bloomberg. Malaysia’s Tapis and Indonesia’s Minas breached that level a week ago, trading at $104.36 and $104.01, respectively this week. The International Energy Agency, an adviser to consuming nations, said Jan. 18 that “three-digit oil prices risk damaging” the economic recovery, signaling that the Organization of Petroleum Exporting Countries should raise output. With “some Asian crudes well above $100 a barrel, the risks of OPEC acting must be higher,” said Lawrence Eagles, New York-based head of oil research at JPMorgan Chase & Co. “We would not be surprised to see the public rhetoric from consuming countries accelerate in the coming weeks. Behind the scenes pressure will no doubt be mounting in parallel.” Oil producers as well as consumers may suffer if crude stays at about $95 to $100 a barrel, the Paris-based IEA said. Stockpiles held by companies in the most developed economies were at 2.742 billion barrels, “near the top of their five-year range,” it said.
  • Copper Set for Worst Week Since August on Concern China to Rein in Economy. The metal for three-month delivery on the London Metal Exchange traded at $9,372 a metric ton by 9:03 a.m. Singapore time. It is down 2.9 percent this week, heading for the worst weekly performance since August.
  • Hewlett-Packard(HPQ) Shuffles Board, Adds Whitman. Hewlett-Packard Co., the largest maker of computers, announced a board shake-up in the wake of criticism over the way it handled the departure of Chief Executive Officer Mark Hurd. Departing board members are Robert Ryan, John Joyce, Joel Hyatt and Lucille Salhany, Palo Alto, California-based HP said in a statement today. Directors joining the board are Shumeet Banerji, CEO of Booz & Co.; Patricia Russo, former CEO of Alcatel-Lucent SA; Dominique Senequier, CEO of AXA Private Equity; Meg Whitman, former CEO of EBay Inc.; and Gary Reiner, former chief information officer of General Electric Co.
  • Japan Set to Miss Bond Sale Target, Cabinet Office Report Shows. Japanese Prime Minister Naoto Kan is projected to break his fiscal promise of capping bond sales, adding to signs he is struggling to contain the world’s largest public debt burden. “I have to say that it’s highly likely Japan won’t be able to keep its pledges,” said Azusa Kato an economist at BNP Paribas in Tokyo. “Kan really has no vision to rein in the debt as he promised.”
  • LinkedIn Said to Be Worth Almost $3 Billion in Secondary Sale.

Wall Street Journal:
  • Power Shifts Atop Google(GOOG). Internet Giant Says Co-Founder Larry Page Will Replace CEO Eric Schmidt. Google Inc. surprised the technology world by naming co-founder Larry Page to replace longtime Chief Executive Eric Schmidt, the biggest management shake-up since the Internet search giant was an obscure California start-up.
  • From China, Signs That Gold's Rally Isn't Endless. The precious-metals selloff accelerated on Thursday amid worries the rally of the past few years may be petering out and concerns that China will slam the brakes on its economy.
  • EPA Loses in Bid to Delay Air Rules. A federal judge on Thursday rejected the Obama administration's request to delay by more than a year controversial new regulations targeting emissions of mercury and other hazardous air pollutants from industrial boilers. The ruling by U.S. District Judge Paul Friedman is a setback for the White House, which is trying to demonstrate to business leaders that it is prepared to moderate the pace of new regulation. The EPA proposal to curb emissions from the facilities has drawn fire from manufacturers and other industry groups concerned that the high costs of new pollution-control technology could force them to close operations and cut jobs. "We are extremely disappointed with the court's decision," the American Forest and Paper Association, one of several industry groups critical of the EPA's proposed regulation, said in a statement. "Today's decision invites more litigation, and ultimately everyone loses as a result of this short-sighted decision."
  • China Invests in Canadian Oil-Export Project. China is helping to finance the development of a proposed $5.51 billion dollar oil pipeline to Canada's West Coast that would open the Asian market to Canadian crude, which is now chiefly consumed by the U.S. State-owned China Petroleum & Chemical Corp., or Sinopec, is among a consortium of Canadian oil producers and Asian refiners investing $100 million in Enbridge Inc.'s proposed Northern Gateway pipeline, Enbridge Chief Executive Pat Daniel said during a Web cast investor conference Thursday.
  • Lenders See Little Choice: Layoffs. The banking industry, racked by the financial crisis and facing slower revenue growth, is starting to cut costs—increasingly at the expense of jobs.
  • GE's(GE) Immelt to Head New White House Jobs Panel. President Barack Obama will announce Friday that Jeffrey Immelt, chief executive of General Electric Co., will head a new White House board aimed at finding ways to foster private-sector job growth. The board will replace an existing panel called the President's Economic Recovery Advisory Board, led by former Federal Reserve chairman Paul Volcker. The name of the new panel stresses competitiveness and job creation, which are expected to be themes of Mr. Obama's State of the Union Address next week. It will be called the President's Council on Jobs and Competitiveness.
Bloomberg Businessweek:
  • Verizon(VZ) Asks Court to Reject FCC's Open Internet Rules. Verizon Communications Inc. asked a court to overturn open-Internet rules adopted last month by a U.S. agency, saying regulators lack authority over how companies provide Web service. The so-called net-neutrality rules set by the Federal Communications Commission would bar Internet-service providers including Verizon, AT&T Inc. and Comcast Corp. from blocking or slowing Web content sent to homes and businesses. “We are deeply concerned by the FCC’s assertion of broad authority for sweeping new regulation of broadband networks and the Internet itself,” Michael Glover, deputy general counsel for New York-based Verizon, said in a statement today. “We believe this assertion of authority goes well beyond any authority provided by Congress.”
  • Indonesia, Philippine Stocks Drop 10% From Highs on Inflation. Stocks in Indonesia and neighboring Philippines slid, driving their benchmark indexes more than 10 percent below recent highs, on concern inflation will lead to higher borrowing costs and pare corporate earnings. The Philippine Stock Exchange Index fell 1.2 percent to 3,956.74 as of 11:34 a.m. in Manila, a decline of 10 percent from its all-time high of 4,397.30 on Nov. 4. The Jakarta Composite index fell 3.1 percent to 3,347.66, extending its tumble to 12 percent since its Dec. 9 record. Indonesia and the Philippines are set to join China and India in sliding more than 10 percent from their peaks, a level signifying a so-called correction to some analysts and investors. Emerging markets are in retreat as central banks from China to India act to stem price gains. “Inflation is the biggest threat and concern in the market now,” said Julian Tarrobago, who helps oversee $200 million in assets at ATR KimEng Asset Management Inc. in Manila. “The market is well aware that inflation will come after rapid growth and it has now reached a point that it has become an issue.”
CNBC:
MarketWatch:
  • Regulators Raise Hackles With Down-Payment Rule. Possible 20% down-payment rule could hurt first-time borrowers. Bank regulators may be leaning toward requiring a high down payment for mortgages exempt from a new mortgage-securitization rule, a Washington analyst said Thursday. That would frustrate consumer groups and community bankers who believe it would tighten mortgage-credit availability to all borrowers, particularly first-time homeowners.
Business Insider:
  • Here is the New MTV Show That Might Be Breaking Pornography Laws. Is MTV's new show "Skins" breaking porn laws? That's the question Brian Stelter asked in his New York Times piece on the British export about teenagers that shows "simulated masturbation, implied sexual assault, and teenagers disrobing and getting into bed together." Most of the actors on "Skins" are first time actors, in their teens, and the youngest is 15 years old, raising concerns that the show may violate federal child pornography statutes.
Zero Hedge:
New York Times:
  • Warner Music(WMG) Puts Itself on the Block.
  • For Small Hedge Funds, Success Brings New Headaches. The hedge fund manager Grange Johnson of LaGrange Capital Partners had a banner year in 2010. But those gains will bring new challenges this year. With his total assets now above $150 million, Mr. Johnson will have to register with the Securities and Exchange Commission under a new rule created to increase industry oversight. While the cost of compliance will barely make a dent at multibillion-dollar firms like SAC Capital Advisors or Eton Park Capital Management, small players like LaGrange could face a significant financial burden. Even money managers winding down their operations will have to comply if their assets are above the $150 million threshold. “The $150 million number is so arbitrary,” Mr. Johnson said at a basic conference table in his modest Midtown Manhattan office. “What possible risk could a $150 million hedge fund pose to the system? We’re the guppies of the industry.” Under the Dodd-Frank regulatory overhaul, hedge funds large and small face a spate of new bureaucratic mandates that take effect in July. Although not all of the details have been completed, firms will probably have to maintain records of e-mails and investments, disclose details like their prime brokers and auditors, and set up a compliance program, including an executive to oversee the process.
  • SEC Approves New Rules for Asset-Backed Securities. The Securities and Exchange Commission approved new regulations on Thursday aimed at curbing the risks posed by asset-backed securities.
  • China Seizes Rare Earth Mine Areas. A Chinese government agency has taken steps to more tightly manage the production and export of rare earth minerals, crucial materials used in a wide range of technologies and products vital to the West. The agency, the Ministry of Land and Resources, invoked a seldom-used mining law to take direct control of 11 rare earth mining districts in southern China. The ministry said in a statement, posted on its Web site Wednesday and briefly mentioned Thursday by the state media, that rare earth mining in those districts, all at the southern end of Jiangxi Province, had been placed under its national planning authority.
  • Path Is Sought for States to Escape Debt Burdens. Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers. Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign. But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
  • Banks Want Pieces of Fannie-Freddie Pie. As the Obama administration prepares a report on the future of Fannie Mae and Freddie Mac, some of the nation’s largest banks are offering a few suggestions. Wells Fargo(WFC) and some other large banks would like private companies, perhaps even themselves, to become the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.
CNN Money:
  • Debt Crosses $14 Trillion Mark. The amount of U.S. debt subject to the country's legal maximum has topped $14 trillion for the first time. On Wednesday, the amount of debt subject to the cap hit $14.001 trillion at the close of trade, according to the daily Treasury statement released on Thursday. That means the country is less than $300 billion away from the $14.294 trillion debt ceiling, which is a cap on how much the federal government can legally borrow.
Washington Examiner:
  • House GOP Begins Long Drive to Dismantle Obamacare. Everyone knows House Republicans (along with three Democrats) voted Wednesday to repeal Obamacare. But fewer people know what those same House Republicans -- this time, with 14 Democrats -- did Thursday. By a vote of 253 to 175, the GOP directed key House committees to report on ways to lower health care premiums, allow patients to keep their current health plans, increase access to coverage for those with pre-existing conditions, and decrease the price of medical liability lawsuits. In other words, the committees are beginning work on replacing the House-repealed Obamacare with Republican health policies. Repeal got a lot of press coverage. Replacement got far less.
The Detroit News:
  • Feds Grant $25M for Downtown Light Rail. Federal officials today announced a grant agreement has been signed for $25 million for a proposed light rail project downtown. U.S. Transportation Secretary Ray LaHood announced the deal was signed by the Federal Transit Administration, city of Detroit and Michigan Department of Transportation for the first phase of the M-1 rail, a 3.4-mile, 12-station line from downtown to New Center.
The Business Journal:
  • Chinese Firm Eyes Fresno for High-Speed Facility. California's high-speed rail project got good reviews from Chinese rail officials during a high-profile meeting in Fresno on Saturday. Now, members of the China Railway Construction Company (CRCC) have entered into an agreement with Fresno County to pursue development on the system.
Office of Governor Jerry Brown:
  • Governor Brown Issues Proclamation Reaffirming Fiscal Emergency. Governor Jerry Brown today issued a proclamation reaffirming the fiscal emergency declared by the previous administration on December 6, 2010. This proclamation underscores the need for immediate legislative action to address California’s massive budget deficit. Text of the proclamation:
Politico:
  • Abortion Interjected into Health Care Reform Repeal. The No Tax-Payer Funding for Abortion Act, introduced Thursday as H.R. 3, aims to codify the Hyde Amendment, which has long barred federal funding for abortion and must currently be renewed every year. The legislation was introduced in tandem with the Protect Life Act, sponsored by Energy & Commerce Health Subcommittee Chair Joseph Pitts (R-Pa.), that would specifically bar any federal funding for abortion under the health reform law.
Reuters:
  • Slot Machine Maker IGT(IGT) Q1 Revenue Slips, Shares Fall. Quarterly profit at International Game Technology rose slightly, but shares of the slot machine maker fell nearly 6 percent as demand from its casino customers remained weak, driving revenue down a disappointing 10 percent.
  • Jones Group(JNY) Sees Costs, Promotions Weigh on Q4 Margins. Jones Group Inc forecast fourth-quarter earnings below Wall Street expectations as higher costs, coupled with an aggressive promotional retail environment, pulled down margins during the key holiday selling season. The apparel, footwear and accessories company added that while it would try and protect margins in 2011 through price increases and cost reduction initiatives, continued cost inflation is expected to keep 2011 margins at 2010 levels. The New York-based company's inability to manage rising cotton and other raw material costs had already taken a toll on its third-quarter results.
  • Intuitive Surgical(ISRG) Profit Exceeds Street View, Shares Jump. Intuitive Surgical Inc on Thursday reported far better-than-expected fourth-quarter profit on strong demand for its da Vinci surgical robots and an increase in procedures using the high priced systems, and its shares jumped nearly 12 percent. The company said net profit rose 56 percent to $121.2 million, or $3.02 per share, from $77.5 million, or $1.95 per share, a year ago, sailing past analysts' average expectations by 77 cents, according to Thomson Reuters I/B/E/S. Revenue for the quarter rose 21 percent to $389 million, exceeding Wall Street estimates of $369.9 million. "It was a very strong quarter. And this happened in face of what people consider to be a relatively weak Capex spending environment," said Les Funtleyder, portfolio manager for Miller Tabak & Co. The company forecast 2011 revenue growth of 16 percent to 20 percent and procedure growth of 25 percent to 28 percent. Despite continued spending constraints in Europe, business appears to be picking up there. The company sold 28 new systems in Europe in the quarter and saw a 42 percent jump in procedure growth. "We're starting to see some nice procedure momentum" in Europe, Chief Executive Gary Guthart told analysts on a conference call. Instruments and accessories revenue rose 33 percent to $151 million for the quarter, driven by a 35 percent jump in da Vinci surgical procedures, as the surgical robots are being used for a broader range of procedures, the company said. Intuitive said it has seen increasing adoption of da Vinci use for colon, thoracic and lung cancer procedures, with the fastest growing newer segment being head and neck procedures, which more than tripled in 2010. Japan remains an area expected to provide significant future growth for Intuitive, but the company does not expect necessary widespread reimbursement for the robotic procedures to be approved in Japan this year. Intuitive shares rose 11.8 percent to $324 in extended trading from their Nasdaq close at $289.93.
  • North America December Chip-Gear Orders Rise 1.4% vs. November.
  • Intrepid Potash(IPI) Sees Q4 Sales Volume Up. Fertilizer maker Intrepid Potash Inc (IPI.N) expects fourth quarter sales volume to rise 40-47 percent, but forecast lower price band for the quarter.
Financial Times:
  • Lisbon Move Points to End of Risk-Free Sovereigns.
  • Orszag Warns Debt Could Derail US Recovery. The US economic recovery is at risk of being derailed this year by a “homegrown fiscal crisis”, Peter Orszag, former budget director in the Obama administration, has warned. In an opinion piece for the Financial Times, Mr Orszag, now a senior executive at Citigroup, said international investors should “pay close attention to the fiscal trends in the US”, noting that the political system has so far failed to tackle the country’s bleak long-term budgetary outlook. “If policymakers won’t act before we have a fiscal crisis at the federal level, a fiscal crisis we will ultimately have,” said Mr Orszag.
Telegraph:
  • Rosneft Could Raise 5% BP(BP) Stake. Kremlin-backed oil company Rosneft has admitted it could raise its 5pc stake in Britain's BP if the new relationship between the parties is successful.
  • The Bear Case: Why Top Investors are Betting Against China. While the official data continues to paint a picture of an economic powerhouse, some of the most respected financial brains in the world are doing everything they can to “short China”. Jim Chanos, the hedge fund manager who famously made millions by uncovering and betting on the demise of Enron, has said he is now betting against China. His view is that China’s growth is based on a huge credit bubble backed by inflated property prices - and that the bubble is now so big that the Chinese government will not be able to engineer a soft landing. He backed by Mark Hart, of Corriente Advisors, the American hedge fund manager who made millions of dollars predicting both the subprime crisis and the European sovereign debt crisis, who started a fund based on the belief that rather than being the “key engine for global growth”, China is an “enormous tail-risk”. In London, Hugh Hendry, a former star of Odey Asset Management, has launched a distressed China fund at Eclectica Asset Management. As The Sunday Telegraph reported, the key argument is that China’s ferocious consumption is not drive by demand. For instance, Corriente’s research has found that China has consumed just 65pc of the cement it has produced in five years, after exports. The country is outputting more steel than the world’s next seven largest producers combined. It has 200m tons of excess capacity. There’s an excess of 3.3bn square metres of floor space in China – yet 200m square metres of new space is being constructed each year. And behind it all, the bears say, is a looming banking crisis. Professor Victor Shih of Northwestern University, Illinois, estimates that Chinese banks have lent $1.7 trillion (£1.1 trillion) to businesses which are not commercially viable. Experts around the world. have dismissed the hedge funds as short-term speculators or even trouble-makers. But on Tuesday Goldman Sachs, the Wall Street trail blazer, issued a short-term alert on China, as well as the other BRIC countries. Tim Moe, the bank’s chief Asia-Pacific strategist, told at conference in London: “To be frank, we may have held on too long to our overweight position in China last year. We have decided that discretion is the better part of valour and have tactically reduced our weight.
China Business News:
  • China's central bank will be responsible for new lending management this year instead of the China Banking Regulatory Commission. CBRC managed the country's new loans during 2009 and 2010.
China Securities Journal:
  • China may raise interest rates around the Chinese New Year if the nation's consumer price situation remains "not optimistic" in the first quarter, the China Securities Journal said in a front-page editorial today. There's still room for an increase in the reserve requirement ratio. The yuan will continue to appreciate this year. Chinese New Year eve is Feb. 2 and Chinese New Year day is Feb. 3.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (TEL), target $46.
  • Downgraded (FCX) to Hold, target $118.
Night Trading
  • Asian equity indices are -1.75% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 110.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 116.50 +3.5 basis points.
  • S&P 500 futures -.13%.
  • NASDAQ 100 futures -.05%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (APD)/1.34
  • (ARG)/.79
  • (BAC)/.14
  • (BBT)/.26
  • (GE)/.32
  • (SLB)/.77
  • (STI)/.07
Economic Releases
  • None of note
Upcoming Splits
  • (SKT) 2-for-1
Other Potential Market Movers
  • The (WPI) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
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Thursday, January 20, 2011

Stocks Falling into Final Hour on China Inflation Fears, Soaring Long-Term Rates, Profit-Taking, Technical Selling

Posted by Gary .....at 3:52 PM

Broad Market Tone:
  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.68 +2.08%
  • ISE Sentiment Index 102.0 +18.60%
  • Total Put/Call .94 +14.63%
  • NYSE Arms .84 -64.69%
Credit Investor Angst:
  • North American Investment Grade CDS Index 85.63 +3.03%
  • European Financial Sector CDS Index 150.29 bps -2.39%
  • Western Europe Sovereign Debt CDS Index 185.17 bps -2.54%
  • Emerging Market CDS Index 202.68 +.43%
  • 2-Year Swap Spread 23.0 unch.
  • TED Spread 15.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 282.0 +6 bps
  • China Import Iron Ore Spot $185.40/Metric Tonne +1.48%
  • Citi US Economic Surprise Index +39.20 -8.0 points
  • 10-Year TIPS Spread 2.31% -5 bps
Overseas Futures:
  • Nikkei Futures: Indicating +78 open in Japan
  • DAX Futures: Indicating +40 open in Germany
Portfolio:
  • Slightly Higher: On gains in my ETF hedges and Retail/Medical long positions
  • Disclosed Trades: Covered my (IWM)/(QQQQ) hedges and then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite mostly positive economic data and diminishing eurozone sovereign debt angst. On the positive side, I-Banking, Retail and Education shares are especially strong, rising more than 1.0% today. (XLF) has outperformed throughout the day. Lumber is rising +2.2%. The Spain sovereign cds is declining -2.25% to 276.59 bps, the Belgium cds is falling -2.54% to 188.63 and the Japan sovereign cds is falling -3.24% to 82.72 bps. The Western Europe Sovereign CDS Index is now -33 bps off its record high set on January 11. Moreover, the US Muni CDS Index is dropping -2.41% to 209.13 bps. The AAII % Bulls fell to 50.7 this week, while the % Bears rose to 29.10, which is a mild positive. On the negative side, Road & Rail, HMO, Networking, Disk Drive, Computer, Ag and Oil Tanker shares are under significant pressure, falling more than 2.0%. Tech shares have underperformed substantially throughout the day. Small-cap and Cyclical shares have also underperformed again today. Copper is falling -2.76%. The China sovereign cds is rising +2.35% to 78.03 bps, the Russia sovereign cds is jumping +3.05% to 146.12 bps and the Emerging Markets Sovereign CDS Index is gaining another +4.17% to 196.29 bps. Rough Rice futures have surged +9% in five days. China's 7-day Repo Rate is jumping another +198 bps today to 6.03% on tightening concerns. January option expiration is tomorrow and the DJIA has declined 10 of the last 12 with big losses seen in 2003, 2006 and 2010. The DJIA is holding up very well and is just about -50 points off its recent high. So far, it appears this is just a healthy pullback after recent sharp gains rather than the beginning of a significant decline. However, inflation in emerging markets appears to be more of a problem than is generally perceived and will likely be the catalyst for a more significant decline last this quarter. One of my longs, (GOOG), reports after the close today. I expect a good report, however estimates have risen meaningfully over the last week and tech is currently underperforming, which could limit any near-term upside reaction in the shares. I will look to add to my position on any meaningful pullback from current levels. I expect US stocks to trade modestly lower into the close from current levels on China inflation fears, profit-taking, technical selling, rising long-term rates and more shorting.
3 comments

Today's Headlines

Posted by Gary .....at 3:07 PM

Bloomberg:
  • Asian Stocks Drop as China Economic Reports Prompt Tightening Speculation. Asian stocks fell, with the regional benchmark index sliding the most in almost two months, as Chinese economic reports prompted speculation the country will do more to fight inflation and U.S. earnings disappointed. The MSCI Asia Pacific Index fell 1.3 percent to 138.66 as of 7:34 p.m. in Tokyo, with about seven stocks declining for every that rose. “It’s fair to say that this data will add to pressure on China to tighten,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Ltd., which manages about $93 billion. Hong Kong’s Hang Seng Index dropped 1.7 percent, its biggest intraday decline in a month, and the Shanghai Composite Index fell 2.9 percent. Japan’s Nikkei 225 Stock Average retreated 1.1 percent. South Korea’s Kospi Index slipped 0.4 percent, while Australia’s S&P/ASX 200 Index dropped 1.1 percent. “If the economy keeps growing at the current pace, inflation will remain alarming,” said Liu Li-Gang, a Hong Kong- based economist at Australia & New Zealand Banking Group Ltd.
  • Home Sales, Leading Index Show Recovery Widening. Sales of previously owned U.S. homes and the index of leading indicators exceeded forecasts, signs the expansion is gaining momentum at the start of 2011. Purchases of existing houses jumped 12 percent in December to a 5.28 million annual rate, the National Association of Realtors said today in Washington. The New York-based Conference Board’s gauge of the economic outlook for the next three to six months rose 1 percent. Claims for unemployment benefits fell by 37,000 last week, according to the Labor Department.
  • Europe's Risk Watchdog May Prove Toothless in Struggle to Prevent Crisis. Europe’s new risk watchdog probably lacks the teeth to avert the region’s next financial crisis, economists and analysts say. The European Systemic Risk Board, which aims to identify and warn of brewing risks in the financial system, may fail to prevent future imbalances as it doesn’t have any legal power to enforce action, according to economists at ING Group, Barclays Capital and ABN Amro. “The problem is that these bodies are set up to solve yesterday’s problems,” said Peter Hahn, a former Citigroup Inc. banker who lectures on finance at Cass Business School in London. “They can never do more than flagging any issues,” and whether they can stop a crisis “is questionable.”
  • EU's Leaders Must End Debt Restructuring 'Taboo,' German CDU's Lauk Says. European leaders should drop their “taboo” against debt restructuring, the head of the business caucus of Chancellor Angela Merkel’s party said, indicating that she has support to take more aggressive action in stamping out the euro-area crisis. “I would recommend looking at it very closely, stop declaring it taboo and do the appropriate analysis to see where that would lead,” Kurt Lauk, president of the German Christian Democratic Union’s Economic Council, said in a phone interview.
  • Brazil Future Yields Rise on Concern Tombini Debut Increase Too 'Dovish'. Yields on longer-term Brazilian interest-rate futures contracts rose after the central bank failed to signal that it will follow up yesterday’s interest- rate increase with more aggressive moves to rein in inflation. The yield on the contract due in January 2013 rose four basis points, or 0.04 percentage point, to 12.75 percent at 8:45 a.m. New York. The yield on the contracts maturing in January 2017 also increased five basis points, or 0.05 percentage point, to 12.37 percent.
  • Morgan Stanley(MS) Earnings Rise on Record Brokerage Fees. Morgan Stanley reported a 35 percent increase in fourth-quarter earnings on record revenue from its brokerage, the world’s biggest. Fixed-income trading revenue was the lowest since the fourth quarter of 2008.
  • Oil Falls Most in Nine Weeks on Concern China to Boost Rates. Crude oil fell the most in nine weeks on concern China will raise interest rates to combat inflation, slowing economic growth and demand for energy. Oil dropped as much as 3.2 percent after China said inflation was 4.6 percent in December. Prices also declined after the Energy Department said that U.S. crude supplies rose for the first time in seven weeks. “Worries about what actions China will take to slow the economy are sending the market lower,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Any Chinese move could lower demand growth.” “China’s voracious appetite for every commodity has been pushing prices higher. The country is now facing the inflation monster and will take additional steps to stem runaway growth.” Crude-oil stockpiles increased 2.62 million barrels to 335.7 million, the Energy Department report showed. A 500,000- barrel decline was forecast, according to the median estimate of 17 analysts surveyed by Bloomberg News. Refineries operated at 83 percent of capacity, down 3.4 percentage points from the previous week, the biggest drop since October 2009. Analysts projected that operating rates would slip 0.5 percentage point. Gasoline inventories climbed 4.44 million barrels to 227.7 million, the highest level since the week ended March 5, according to the department. Stockpiles were estimated to increase by 2.5 million barrels. Supplies of distillate fuel, a category that includes heating oil and diesel, increased 1.04 million barrels to 165.8 million. Stockpiles were forecast to climb by 1 million barrels.
  • CFTC Weighs Plan to Regulate Agricultural Swaps the Same as Credit Swaps. The U.S. Commodity Futures Trading Commission may remove regulations that for more than a decade treated agricultural swaps and commodity options differently than other transactions in the $583 trillion swaps market. The CFTC’s five commissioners today at a meeting in Washington are considering a proposal that would put agricultural swaps under the same rules as interest rate, credit and other types of swaps. Approval by commissioners would open the measure to public comment before it is completed.
  • OPEC to Cut Exports as Asian Demand Slows, Oil Movements Says. The Organization of Petroleum Exporting Countries will reduce crude shipments this month as demand from Asia slackens, according to tanker-tracker Oil Movements. Loadings will drop 1.1 percent to 23.55 million barrels a day in the four weeks to Feb. 5 from 23.8 million barrels in the period to Jan. 8, Oil Movements said today in a report. It’s the fourth straight month-on-month decline shown in the consultant’s weekly figures.
  • Copper Drops Most in Two Months on Speculation China to Restrain Economy. Copper fell the most in two months on concern that China, the world’s biggest metal consumer, will take more steps to restrain the economy. Copper futures for March delivery fell 11.1 cents, or 2.5 percent, to $4.259 a pound at 10:25 a.m. on the Comex in New York.
  • Hu Flaunts Rising China Power by Using Friendly Confines of Chicago Visit. Chicago is known as a destination for immigrants. Yet in a city with 2.8 million people, the most recent U.S. Census estimates found only about 40,000 Chinese -- just 1.4 percent of the population. So why is the president of China, Hu Jintao, coming to Chicago as the only other stop on a U.S. tour that started in Washington, instead of places with more Chinese residents and businesses, such as San Francisco, New York or Los Angeles? The answer combines long-standing business relationships, pragmatic politicians who have muted their criticism of the Chinese, and one of the first Mandarin-language programs in a U.S. high school. Pushing them all is a mayor whose brother -- a former Commerce secretary and early advocate for China trade -- now works for a city resident, President Barack Obama.
  • Man Group Sinks as Investor Pulls $1 Billion, Analyst Question Fee Growth. Man Group Plc, the largest publicly traded hedge-fund firm, fell after a single investor pulled $1 billion from its long-only funds and analysts questioned whether performance fees would meet estimates in future quarters. The stock dropped 2.4 percent to 294.1 pence at the close of trading in London.
  • Boehner Says China Has 'Responsibility to Do Better'. China has a “responsibility to do better” at guaranteeing freedom and dignity for its citizens and the U.S. has a “responsibility to hold them to account,” U.S. House Speaker John Boehner said after meeting with Chinese President Hu Jintao.
  • Daley Can Defer Capital Gains Tax on $8.3 Million JPMorgan(JPM) Sale. William Daley, President Barack Obama’s new chief of staff, can defer the payment of capital gains taxes on his sale of almost $8.3 million of JPMorgan Chase & Co. shares, based on government ethics rules.

Wall Street Journal:
  • Hu Stresses Cooperation With U.S., Sovereignty On Tibet and Taiwan. Chinese President Hu Jintao on Thursday reiterated the need for Beijing and Washington to work together and urged the U.S. to respect China's sovereignty over Taiwan and Tibet. "We should treat each other with respect," Mr. Hu said in a speech at a luncheon held by the U.S.-China business council. "Taiwan and Tibet concern China's sovereignty and territorial integrity and they represent China's core interests," he said.
Bloomberg Businessweek:
CNBC:
Business Insider:
Zero Hedge:
New York Times:
  • U.S. Prepares to Lift Ban on Guantanamo Cases. The Obama administration is preparing to increase the use of military commissions to prosecute Guantánamo detainees, an acknowledgment that the prison in Cuba remains open for business.
  • Higher Taxes Wouldn't End Some Deficits. What would an increase in the personal income tax of a size similar to that of Illinois do for other fiscally troubled states? The New York Times examined this question in three embattled places, New York, California and New Jersey.
  • Cuomo Considers Cutting Up to 15,000 State Jobs. Gov. Andrew M. Cuomo is considering reducing the state workforce by up to 15,000 workers in his budget, the largest cut to the government payroll in recent years, two people briefed on the plan said Wednesday night. The prospective cuts are likely to accompany large reductions in Medicaid and state education spending, those people said, as Mr. Cuomo and his administration seek to close a projected budget gap of more than $9 billion. But the cuts would represent a substantial downsizing of the state’s workforce, including clerical workers, state troopers and park rangers. And that belt-tightening would almost certainly be accompanied by noticeable reductions in government services, though it is hard to predict where and how much until Mr. Cuomo releases his proposed budget in early February.
  • Solar Firms Frustrated by Permits. Ken Button, the president of Verengo Solar Plus, a residential solar panel installer in Orange, Calif., says his company — and his industry — are being strangled by municipal red tape.
Boston Globe:
  • Massachusetts Slated to Receive Over $150 Million in Additional Medicaid Funding. Massachusetts, under a deal finalized today with the federal government, is slated to receive upwards of $150 million in additional Medicaid funding that will help shore up hospitals that treat many of the state's low-income patients, including Boston Medical Center and Cambridge Health Alliance. The funding comes on top of roughly $300 million that the federal government already agreed to pay for the purpose last fall. Senator John F. Kerry helped lobby the Obama administration for the additional funding. "It was really key that we do this, it was critical," Kerry said in an interview this afternoon. "We've got safety net hospitals that are on the brink. The lack of this (funding) would have been devastating to our hospitals." The state's so-called safety net hospitals have been struggling since 2006, when the state's ground-breaking health insurance law phased out special payments to BMC and Cambridge Hospital for treating the poor. These payments are now being used to subsidize health coverage for thousands of newly insured residents.
Wall Street Pit:
  • QE2 Working the Wrong Way - Has the Fed Redefined the Mission? A funny thing happened on the way to QE2: rates rose rather then fall. It appears The Ben Bernank has now redefined the mission from keeping long rates down to pushing stock prices up. He says he wants to create a “wealth effect” among investors that pulls the economy out of the slump. Never mind that rising commodities prices (especially oil) create a corresponding “poverty effect” for the middle class. How will this end?
Seeking Alpha:
Dallas Morning News:
  • Federal Reserve Bank of Dallas President Richard Fisher would have voted against the central bank's plan to buy $600 billion of bonds if he had held voting power, he said in an interview. Fisher, who has a vote this year on the policy-setting FOMC, said that he expects the asset purchase program to be completed and that he "would be wary of further accommodation," according to the Dallas Morning News.
Politico:
Reuters:
Financial Times:
Telegraph:
Handelsblatt:
  • Germany plans to reduce the fee paid to private households for the supply of excess solar energy by as much as 15% from July and a further 9% next year, citing government and industry officials.
Rheinische Post:
  • Germany should consider completely ending its aid for renewable energy, Lower Saxony's environment minister Hans-Heinrich Sander said, citing an interview.
0 comments

Bear Radar

Posted by Gary .....at 2:18 PM

Style Underperformer:
  • Mid-Cap Growth (-1.13%)
Sector Underperformers:
  • 1) Agriculture -2.25% 2) Computers -2.20% 3) Networking -2.20%
Stocks Falling on Unusual Volume:
  • CIG, SHW, AIG, NETL, SWKS, CCJ, IOC, FCX, LGCY, AGO, HES, RDEA, FFIV, PLXS, CRNT, BCSI, NTCT, CAVM, HCBK, LPHI, VIVO, AFOP, RVBD, CLDA, STX, SFSF, HOLI, CTXS, NTGR, IGV, AHD, NRP, CYD, PBT, MOS and WSO
Stocks With Unusual Put Option Activity:
  • 1) RVBD 2) RSX 3) NETL 4) FFIV 5) ARUN
Stocks With Most Negative News Mentions:
  • 1) ALTR 2) PPG 3) WPO 4) HCBK 5) CVX
1 comments

Bull Radar

Posted by Gary .....at 11:33 AM

Style Outperformer:
  • Mid-Cap Value (-.54%)
Sector Outperformers:
  • 1) Education +1.91% 2) Retail +.66% 3) Utilities +.39%
Stocks Rising on Unusual Volume:
  • DDS, SHLD, EBAY, LOW, PRGO, PRXL, PPDI, ESI, JCP and RJF
Stocks With Unusual Call Option Activity:
  • 1) XLU 2) STJ 3) UAL 4) NETL 5) FFIV
Stocks With Most Positive News Mentions:
  • 1) FINAL 2) MANT 3) EP 4) ORBT 5) DUK
0 comments

Thursday Watch

Posted by Gary .....at 12:06 AM

Evening Headlines
Bloomberg:
  • Bonds at Risk as Moody's, S&P Poised to Lower Credit Ratings: Euro Credit. Europe’s most-indebted countries are vulnerable to additional rating cuts driving up their borrowing costs, which may pressure policy makers to muster a more aggressive response to the region’s debt crisis. “To say that we are at the bottom of credit ratings cycle, by implication one will have to believe that the deleveraging process has come to an end,” said Peter Geikie-Cobb, who helps manage about $6.5 billion at Thames River Capital U.K. Ltd. in London. “I don’t think that’s the case.” Fitch Ratings cut Greece to BB+ on Jan. 14, joining Standard & Poor’s and Moody’s Investors Service in bestowing junk status on the country’s debt. Moody’s began reviewing Portugal and Spain in December after S&P started its three-month clock on whether to downgrade Spanish debt. The European Union’s so-called peripheral countries have seen their creditworthiness evaporate as surging budget deficits and slumping economic growth boosted debt. The bailouts of Greece and Ireland have focused investor scrutiny on other high- deficit countries such as Portugal, Spain and Belgium. “The risks of ratings changes in the next few months are high, and the rather more Pavlovian reaction of short-term trading books will indeed be sensitive to such changes,” said Marc Ostwald, a strategist with Monument Securities in London. A wave of ratings downgrades could begin within weeks.
  • House Approves Repeal of Obama's Health-Care Reform Law. The U.S. House of Representatives voted to repeal President Barack Obama’s health-care overhaul as Republicans delivered on campaign promises to reopen debate on the issue and attempt to reshape the law. The measure passed 245-189, with all of the House’s 242 Republicans joined by three Democrats to support overturning the measure signed into law by Obama last March. “Repeal means keeping a promise,” said House Speaker John Boehner in a speech on the House floor. “This is what we said we would do.” The House action officially re-ignited a debate that consumed Congress during much of Obama’s first two years in office and is likely to be a prime topic during the 2012 presidential campaign. “This ain’t repealing nothing,” said Representative Charles Rangel, a New York Democrat, on the House floor. “This is the political theater part of it.” House Majority Leader Eric Cantor, a Virginia Republican, told reporters today that “the American people deserve to see a vote in the Senate.” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said he will push for one. Cantor said the repeal vote will be followed tomorrow by a vote instructing House committees “to begin work to construct an alternative health-care vision” that will be “our so-called replacement bill.” During debate today, Republicans said their plan would include many provisions that Democrats touted in the existing law, including allowing young adults to stay on their parents’ insurance plans up to age 26 and barring insurers from rejecting coverage for people based on pre-existing conditions. Boehner, an Ohio Republican, told reporters that a replacement plan would aim to “bring down the cost of health insurance for the American people and expand access.” As they work on their proposals, Republicans plan to use the House Appropriations Committee to stymie Obama’s overhaul measure, mainly by denying money for implementing some of its provisions. Forty-six percent of Americans think the health care law is likely to cut jobs, 54 percent think it will hurt the economy, and 62 percent see it as increasing the federal deficit, according to a poll conducted Jan. 13-16 by ABC News and the Washington Post. Republicans, who call the law “Obamacare,” contend it will raise taxes, destroy jobs and burden businesses with new requirements such as one that makes them report to the Internal Revenue Service any expenditure over $600. “Let’s stop payment on this check before it can destroy more jobs and put us in a deeper hole,” Boehner said in his floor speech. Representative Michele Bachmann, a Minnesota Republican, termed the overhaul measure “the crown jewel of socialism; it is socialized medicine.” The three Democratic lawmakers voting for repeal were Dan Boren of Oklahoma, Mike McIntyre of North Carolina and Mike Ross of Arkansas.
  • Global Bond Growth Rate Decelerates to Pre-Crisis Levels: Credit Markets. The growth in bonds outstanding globally is slowing for the first time since 2005 as governments withdraw their support while credit markets heal.
  • Fed Creates Diversity, Inclusion Offices at Board, 12 Banks. The Federal Reserve is establishing offices to promote diversity at the central bank’s Washington- based board and 12 regional banks as required by a law overhauling financial regulation enacted last year. The Office of Diversity and Inclusion will also develop standards to assess the practices of entities regulated by the Fed, the central bank said in a statement today. Sheila Clark, who has overseen the Equal Employment Opportunity programs at the Fed board, was named program director.
  • Health Journals May Force Scientists to Report Hedge Fund Ties to Research. The New England Journal of Medicine and 13 other research publications may force scientists who submit studies to disclose payments from hedge funds in the wake of insider-trading probes involving a drugmaker and technology companies. Editors for the New England Journal, the Journal of the American Medical Association and 12 other periodicals will discuss during their annual meeting in June whether researchers must reveal investment-industry ties, said Karen Buckley, a New England Journal spokeswoman. Existing rules on payments by drugmakers and device companies don’t cover arrangements with investors, Buckley said in a phone interview.
  • High-Frequency Traders May Accept More Risk, Liquidnet Says. Some high-frequency trading firms will transact blocks of shares away from exchanges as pending regulations restrict some of their activities, according to analyst Vlad Khandros at Liquidnet Holdings Inc. The prediction was 1 of 11 that Khandros, a market- structure and public-policy analyst, sent to some of New York- based Liquidnet’s 630 mutual fund and hedge fund clients today. He also said high-frequency trading, in which firms may transact thousands of times a second, will become an “accepted and defined” category of market participants this year.
  • Bankrupt Vallejo May Repay Its Creditors as Little as 5% of Claims. The city of Vallejo, California, proposed paying some creditors as little as 5 percent of what they are owed, making it the first general municipality that would fail to fully repay its debts in bankruptcy. General unsecured creditors would collect 5 percent to 20 percent of their claims under the plan of adjustment filed late yesterday in U.S. Bankruptcy Court in Sacramento, the state capital. No city or county has used federal bankruptcy laws to force creditors to take less than they are owed, according to Bruce Bennett, the lead lawyer for Orange County, California, when it filed the biggest municipal bankruptcy in the U.S. in 1994. Vallejo’s plan assumes the city can’t provide essential services, like police and fire protection, while also paying its debts, he said. Should the city succeed, the case “may become an important precedent,” Bennett said in an interview.
  • Finra's Ketchum Says Brokers Likely to Face Fiduciary Standard. The Financial Industry Regulatory Authority’s top executive said federal regulators are “very likely” to force U.S. brokers to meet stricter requirements for acting in the best interests of their clients. The Securities and Exchange Commission may force brokers who give personalized advice to adopt the fiduciary standard applied to investment advisers, Finra Chief Executive Officer Richard Ketchum said today at a securities law conference in Coronado, California.
  • Obama Dinner Menu Includes Maine Lobster, Rib Eye and Apple Pie. The guests invited to President Barack Obama’s state dinner in honor of Chinese President Hu Jintao will be served a “quintessentially American” meal, including “old fashioned apple pie with vanilla ice cream,” according to the menu released by the White House. The main course for the third state dinner hosted by the president and Michelle Obama will feature poached Maine lobster, dry aged rib eye with double stuffed potatoes and creamed spinach. Among the 225 invited guests are actor Jackie Chan, Jamie Dimon, chief executive officer of JPMorgan Chase & Co.(JPM), Walt Disney Co.(DIS) CEO Robert Iger and former Presidents Jimmy Carter and Bill Clinton.
  • Daley Files to Sell $8.3 Million JPMorgan(JPM) Shares After Joining Obama Team. William Daley, President Barack Obama’s new chief of staff, filed a notice with the Securities and Exchange Commission today to sell 186,190 shares of JPMorgan Chase & Co. that he valued at almost $8.3 million. The approximate date of sale was listed in the filing as today and comes as Daley, a former JPMorgan executive, divests his holdings to work at the White House.
  • Godrej Raises Prices for Third Time in Three Months as Indian Costs Surge. Godrej Consumer Products Ltd., India’s second-largest maker of bath soap, will raise prices for a third time in as many months to offset raw material costs that have climbed 50 percent since April. “We are facing an abnormal scenario in raw material prices,” Managing Director A. Mahendran said in a Jan. 18 interview. Godrej Consumer, controlled by billionaire Adi Godrej, plans to raise prices of soap and hair color by as much as five percent, Mahendran said at its Mumbai headquarters.

Wall Street Journal:
  • Spain to Ramp Up Bailout of Banks. Spain plans to pour billions more euros into its troubled savings banks and force them to be more open about their lending practices, people familiar with the matter said, an acknowledgment that previous efforts to fix the banks have fallen flat as the country seeks to ward off an international bailout. In a first step, Spain is preparing to issue €3 billion ($4 billion) in debt in coming days, the people familiar with the matter said. Government officials are putting plans in place to eventually raise as much as €30 billion, according to these people, though some say the final tally will be less. The hope is that a series of capital injections will quell investor jitters about the savings banks, known as cajas (literally, "boxes"), which have been a thorn in Spain's side as it seeks to convince investors that the country's finances are stable. The fate of the cajas is inextricably tied to the fate of Spain and potentially to the euro itself. Fear that the savings banks can't raise funds on their own and will need a government bailout was one reason ratings agency Moody's put Spain's rating on review for a downgrade last month.
  • China's rare-earth exports dropped 9.3% to 39,813 metric tons last year, underscoring the government's tight grip on the specialized metals, citing data from China Customs Statistics Information Center.
  • Rivals Seek New Balance. Obama, Hu Emphasize Common Ground, Gloss Over Lasting Disputes at Summit. U.S. President Barack Obama and Chinese President Hu Jintao, seeking a steadier footing for the often-troubled U.S.-China relationship, played up the two nations' common interests—and soft-pedaled or ignored longstanding issues that divide them.
  • The iPad Now Can Take Command of Computers by Walt Mossberg. What about remotely controlling a PC or Mac from the newest category of digital device, a multitouch tablet? Well, it turns out there are apps for that.
  • Goldman(GS) Profit is Pinched by New Rules. Goldman Sachs Group Inc.'s profit slide of 52% in the fourth quarter showed the securities giant's size and swagger aren't enough for it to escape the tightening squeeze of a regulatory overhaul and jittery clients and investors.
  • As Food Prices Soar, Eateries Scramble. Soaring global food prices, particularly for meat, sugar and coffee, are putting pressure on the restaurant, travel and hotel sectors as they pursue a fragile recovery. In a bid to offset added costs without passing them on to price-sensitive consumers, many companies are scrambling to renegotiate contracts, find cheaper suppliers and reconfigure menus. Increased demand and market speculation, as well as bad weather like the recent flooding in Australia, have driven up prices for items ranging from coffee beans to beef.
  • The Union Threat to the Democrats' Future by Douglas E. Schoen. Unless the party confronts its allies in the public-employee unions, it will continue to lose credibility with voters around the country. There is a crisis in state and municipal finance. That much is clear. What hasn't been fully understood is that the fate of the Democratic Party is bound up in the resolution of that crisis.
  • The Repeal Vote. Democrats are deriding last night's House vote to repeal ObamaCare as "symbolic," and it was, but that is not the same as meaningless. The stunning political reality is that a new entitlement that was supposed to be a landmark of liberal governance has been repudiated by a majority of one chamber of Congress only 10 months after it passed. This sort of thing never happens. More House Members—245 in total—voted to rescind the new entitlement than the 219 Democrats who voted to create it last March. That partisan majority narrowly prevailed over all 178 Republicans and some 38 Democrats. The three Democrats who favored repeal yesterday confirmed the bipartisan opposition to the kind of vast new social program that historically has been built on a national bipartisan consensus.
CNBC:
NY Post:
Forbes:
AutomatedTrader:
market folly:
USA Today:
Reuters:
  • EBay(EBAY) Outlook Beats Street as Turnaround Bears Fruit. Online marketplace eBay Inc provided investors with a bullish 2011 profit outlook after the holiday quarter showed signs it is delivering a promised turnaround, as improvements in its buyer experience helped boost sales at its marketplaces unit. Its shares rose 2.4 percent after hours.
  • F5 Networks(FFIV) Weak Q2 Revenue View Drags Down Sector. F5 Networks forecast weak second-quarter revenue, knocking down network equipment stocks on concerns that the market for managing the explosion in Internet traffic may not be growing as fast as expected. Shares of F5 Networks, which has outperformed market expectations for the past seven quarters, plunged 23 percent after the company forecast lower-than-expected revenue for the January-March quarter.
  • Plexus(PLXS) Warns of Sequential Fall in Q3 Revenue; Shares Down. Plexus Corp warned of sequential decline in third-quarter revenue and a "significant" production delay for its customer Coca-Cola Co, sending the electronics manufacturing services company's shares down 10 percent in after-market trade.
Financial Times:
Telegraph:
  • US Trader Hetco Drives Up Oil Price. An American trading group reportedly building up a "huge" physical position in North Sea oil has driven London Brent prices above $98 a barrel. Hetco, which is part-owned by US oil and gas group Hess Corp, was said to have taken control of eight North Sea Forties oil shipments and two Brent cargoes – and it is believed to be in the market for more. The move would give Hetco more influence over the price of oil for immediate delivery.
  • Brazil Slams Brakes to Curb Inflation, Risking Hot Money Tsunami. Brazil has raised interest rates sharply, following China, India and host of countries across the emerging world in acting to curb inflation and counter the flood of dollar liquidity from the US. Alexandre Tombini, the new head of Brazil’s hawkish central bank, kicked off his tenure by raising the key Selic rate a half point to 11.25pc, despite fears that this will push the over-valued real to extreme levels.
  • Goldman Sachs £9.6bn pay and bonuses to rouse tensions with City. Goldman Sachs' staff have been handed a compensation pot worth $430,000 (£269,000) per employee in a payout that is likely to once again stir tensions between the City and the rest of the UK.
The Economic Times:
  • Leaks Force RIM(RIMM) to Break Talks with India. Canada-based Research in Motion , the maker of BlackBerry smartphones, has temporarily suspended its dialogue with the government on security issues saying leakage of sensitive discussions between the company and the Indian authorities had undermined the confidence needed for such talks. Endorsing RIM’s stance, Canada has complained to Home Secretary GK Pillai that confidential information submitted by the smartphone company was being leaked to the media, and a top executive from the cellphone company would visit New Delhi and assess the situation (on the leaks) before talks resume.
China Daily:
  • China's policies towards protecting intellectual property rights should not be labeled "protectionist" as the country seeks to prevent monopolies on technology by foreign companies, Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce, wrote.
  • China will continue to diversify its foreign exchange investments from U.S. Treasuries in a bid to control risk, citing Zhang Monan, a researcher with the State Information Center.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (MRO), raised target to $50.
Night Trading
  • Asian equity indices are -1.25% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 111.0 +3.5 basis points.
  • Asia Pacific Sovereign CDS Index 113.0 +.5 basis point.
  • S&P 500 futures +.07%.
  • NASDAQ 100 futures +.08%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ESI)/3.12
  • (JCI)/.54
  • (UNH)/.85
  • (FCX)/2.98
  • (FCS)/.39
  • (PPG)/1.12
  • (PH)/1.29
  • (PGR)/.36
  • (MS)/.28
  • (COL)/.88
  • (MI)/-.24
  • (COF)/1.37
  • (ISRG)/2.25
  • (GOOG)/8.08
  • (MXIM)/.41
  • (AMD)/.11
  • (LUV)/.15
  • (PNC)/1.36
  • (IGT)/.20
  • (UNP)/1.48
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 420K versus 445K the prior week.
  • Continuing Claims are estimated to rise to 3985K versus 3879K prior.
10:00 am EST
  • Existing Home Sales for December are estimated to rise to 4.87M versus 4.68M in November.
  • Leading Indicators for December are estimated to rise +.6% versus a +1.1% gain in November.
  • Philly Fed for January is estimated at 20.8 versus 20.8 in December.
11:00 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -500,000 barrels versus a -2,154,000 barrel decline the prior week. Distillate supplies are expected to rise by +1,000,000 barrels versus a+2,652,000 barrel gain the prior week. Gasoline inventories are expected to rise by +2,500,000 barrels versus a +5,081,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by -.5% versus a -1.6% decline the prior week.
Upcoming Splits
  • (TEF) 3-for-1
Other Potential Market Movers
  • The $13 Bln 10-Year TIPS Auction, (SE) analyst meeting and the (WGL) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
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