North American Investment Grade CDS Index 81.80 -1.39%
European Financial Sector CDS Index 126.50 bps -12.76%
Western Europe Sovereign Debt CDS Index 175.17 bps -2.05%
Emerging Market CDS Index 198.45 -1.53%
2-Year Swap Spread 22.0 -1 bp
TED Spread 15.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 281.0 -1 bp
China Import Iron Ore Spot $185.0/Metric Tonne -.38%
Citi US Economic Surprise Index +35.70 -2.9 points
10-Year TIPS Spread 2.18% unch.
Overseas Futures:
Nikkei Futures: Indicating +55 open in Japan
DAX Futures: Indicating +14 open in Germany
Portfolio:
Higher: On gains in my Ag, Tech, Biotech and Medical long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher, despite recent equity gains, terrorism fears, worries over emerging markets inflation and financial sector weakness. On the positive side, Airline, Homebuilding, Construction, Biotech, Computer Services, Disk Drive, Semi, Computer, Alt Energy and Coal shares are especially strong, rising more than 1.0% today. Small-Cap and Cyclical shares are outperforming. Tech stocks are trading much better today. Copper is rising +.51%, Lumber is jumping another +2.74% and the 10-year yield is stable at 3.4%. The Spain sovereign cds is declining -3.76% to 255.62 bps, the Belgium cds is falling -5.64% to 170.12 and the Italy sovereign cds is falling -3.30% to 180.0 bps. The Western Europe Sovereign CDS Index is now -43 bps off its record high set on January 11. Moreover, the European Investment Grade CDS Index is dropping -4.54% to 77.92 bps, which is also a large positive. On the negative side, HMO, Medical Equipment, Bank, Oil Tanker and Defense shares are down on the day. (XLF) has underperformed substantially throughout the day. Ireland's sovereign cds is gaining +2.31% to 609.15 bps. Rough Rice futures are up another +1.9%. Thailand's benchmark equity index fell -4.3% overnight on rising inflation fears and is breaking down technically. Southeast Asian equities, in general, trade very poorly. The DJIA continues to hold up very well and is making another new multi-year high today. It is noteworthy that the (XLI) is seeing 792% above normal put volume today. After Friday's technical breakdown, the 10-Year TIPS spread is unch. today despite the global stock rally, a rise in the euro, surging food prices and rising economic optimism. As well, gold continues to trade poorly. I continue to believe that investors are becoming increasingly concerned by the possibility of economic hard landings in some key emerging markets. I expect US stocks to trade mixed-to-lower into the close from current levels on emerging market inflation fears, profit taking, financial sector pessimism and more shorting.
U.S. Credit Swaps Fall to Lowest in a Year on Corporate Earnings, Recovery. The cost of protecting U.S. corporate bonds from default fell to the lowest in more than a year as company earnings exceeded forecasts, adding to evidence the economic recovery is gaining pace. “There’s still no fundamental risk,” said Stephen Antczak, head of U.S. credit strategy at Societe Generale SA in New York. “Profits are OK, there are no defaults. People just aren’t fearful of negative fundamentals.” The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 0.9 basis point to a mid-price of 82 basis points as of 10:51 a.m. in New York, according to Markit Group Ltd. The index is falling as headline risk from the sovereign debt crisis in Europe declines, according to Antczak.
Intel(INTC) Will Add $10 Billion to Its Stock-Repurchase Program; Shares Advance. Intel Corp., the world’s largest chipmaker, added $10 billion to its stock-buyback plan to return money to shareholders as corporations’ spending on technology boosts its earnings. The increase brings the total authorized for buybacks to $14.2 billion, Santa Clara, California-based Intel said on its website today.
Carrying capacity for ships hauling commodities such as coal, iron ore and grains will expand at more than twice the rate of demand this year, according to forecasts from Clarkson Plc, the world's largest shipbroker. The fleet will grow 13% in 2011, led by a 17% expansion for capesize vessels that primarily carry iron ore. Demand will grow 6%, Clarkson said. Capacity rose 17% last year and demand 11%, it said.
Obama Keeps Corps of Corporate Friends Close Amid Criticism From Business. Even though his relationship with U.S. business has been strained at times, President Barack Obama has kept a coterie of business leaders, such as Robert Wolf, chairman of UBS AG’s Americas unit, and Honeywell International Inc. chairman David Cote, in his orbit. Obama raised more than $40 million for his presidential campaign from business groups and financial firms in the 2008 presidential campaign, more than double what his Republican opponent John McCain got. Many of those supporters have stayed with Obama during the first two years of his term even as the administration drew criticism over government regulation, the overhaul of health-care laws and rules for financial institutions. Obama, 49, counted corporate executives among his advisors and top fundraisers in his run for the presidency in 2008. Wolf, for example, helped raise $500,000 for Obama’s campaign and has stayed close to the president. He served on the original advisory panel and was part of an exclusive group who played golf with Obama while the first family was on vacation at Martha’s Vineyard in August. Wolf also was among the executives invited to a series of meals in Washington as Obama reached out to win support from businesses. He was joined on the invitation list by Intel Corp.’s Paul Otellini and Andrew Liveris of Dow Chemical Co., who were back at the White House on Jan. 18 for the state dinner honoring Chinese President Hu Jintao. Immelt, Boeing Co.’s James McNerney and Coca-Cola Co.’s Muhtar Kent, who serve on Obama advisory boards, attend regular meetings at the White House and get seats at state dinners as well, as do JPMorgan Chase & Co. CEO Jamie Dimon, Microsoft Corp. CEO Steve Ballmer and Lloyd Blankfein, chairman and CEO of Goldman Sachs Group Inc. At the White House, Obama and his aides regularly welcome corporate executives to private meetings. Immelt, Ballmer and Cote have each been to the White House more than a half-dozen times, according to Secret Service visitor logs. Billionaire investor Warren Buffett has been hosted by the president at least twice. The chairman of Berkshire Hathaway Inc. was also an informal advisor to Obama’s presidential campaign.
France's Sarkozy Urges Group of 20 to Regulate Commodities, Price Swings. French President Nicolas Sarkozy said regulation of commodity markets will be a priority as he leads the Group of 20 nations this year, and inaction may cause food rioting in the world’s poorest countries. Some commodity markets lack safeguards to limit price spikes and “price manipulation,” Sarkozy said at a press briefing in Paris today. "If we do nothing, we risk having food riots in the poorest countries and also an unfavorable impact on global growth,” Sarkozy said. “We want regulation of the financial markets for commodities.” Commodity-producing countries must be made to understand “that they themselves have the largest interest in an orderly movement,” Sarkozy said. “A frenetic upward jump is followed by a frenetic movement downward.” One of the rules France proposes is for commodity investors to set aside a deposit equal to part of the value of the raw material being traded, according to the president. “Does it make sense that you can buy considerable stocks of commodities without running any risk, without blocking any sum, without committing to any cargo delivery?” Sarkozy said.
Wheat Extends Advance to Five-Month High as La Nina Threatens Global Crops. Wheat rose to a five-month high in Chicago on signs of stronger demand and on speculation adverse weather that has hurt production in Australia, the U.S. and South America will persist. U.S. sales to overseas buyers surged to 1.054 million metric tons in the week ended Jan. 13, seven times more than a week earlier and the most since August, the Department of Agriculture said last week. Cold weather in the U.S. and a drought in China curbed crop prospects as rain in Australia floods fields and drought in South American hurts plants. “The price of wheat has gained in the last few days from surprisingly positive U.S. export data and the extreme cold in major U.S. growing areas,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report today. “The market still has to digest the loss of high-quality wheat from Australia due to the flood catastrophe.” Wheat for March delivery climbed 10.75 cents, or 1.3 percent, to $8.3525 a bushel at 1:14 p.m. London time on the Chicago Board of Trade. The grain reached $8.395, the highest price for a most-active contract since Aug. 6. Prices have gained for five days and are up 5.2 percent this month. Milling wheat for March delivery added 3.75 euros, or 1.4 percent, to 263.25 euros ($357.31) a ton on NYSE Liffe in Paris. The price has more than doubled in the past year.
Oil Drops in New York After Saudi Arabia's Al-Naimi Signals More Supplies. Crude for delivery in March dropped for a fifth day after Saudi Arabian Oil Minister Ali al-Naimi signaled OPEC may increase supply to meet growing demand in China and India. Saudi Arabia won’t let prices rise too quickly, in order not to distort demand,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. Al-Naimi reiterated that the Organization of Petroleum Exporting Countries’ policy is to meet any additional requirement for crude. Hedge-fund managers and other large speculators increased their net-long position 0.4 percent in crude contracts in the week ended Jan. 18, according to Commodity Futures Trading Commission data. Bets that prices will rise held by the managed money category of investors, in futures and options, outnumbered short positions by 210,564 contracts, the Washington-based regulator said Jan. 21 in its weekly Commitments of Traders report.
Brazil's Amazon May Hold 'Super Giant' Oil Fields, HRT Says; Shares Climb. Brazil’s Amazon may hold “super giant” fields of light oil in an area the country is starting to explore, HRT Participacoes em Petroleo SA Chief Executive Officer Marcio Mello said. The shares gained. The Rio de Janeiro-based oil-exploration company will start producing from its wells in the Amazon’s Solimoes river basin as early as June, Mello said today in a Bloomberg Television interview in New York. HRT will begin drilling in February and expects to reach an oil reservoir in May, he said. HRT will drill 12 wells at the Amazon this year. “The oil at Solimoes is the best in the whole of South America,” Mello said. “The Amazon is a completely unexplored frontier.” Brazilian oil deposits below a layer of salt in the Atlantic Ocean hold at least 123 billion barrels of reserves, more than double government estimates, according to a university study by a former Petroleo Brasileiro SA geologist. The research, which set out to show government figures were too optimistic, found they underestimated the area’s potential, said Hernani Chaves, a professor at the Rio de Janeiro State University who worked at Petrobras for 35 years. The forecast, which the study puts at a 90 percent probability, compares with the Brazilian oil regulator’s 50 billion-barrel estimate.
Spain Banks Capital Need Won't Exceed $27 Billion, Finance Minister Says. Spanish Finance Minister Elena Salgado said the amount needed to recapitalize the country’s banking system won’t exceed 20 billion euros ($27 billion) and “all or part” of that sum will come from financial markets. Spain will also make lenders adopt a core capital ratio of at least 8 percent, Salgado said in a news conference in Madrid today. Lenders will have until the fall to raise enough capital to meet that requirement, and those that can’t do so will be able to tap the state’s bank-rescue fund known as FROB, which will take ordinary shares with voting rights in exchange. The figure is lower than estimates from analysts including those at Moody’s Investors Service, which said today that lenders may need at least 17 billion euros, rising to 89 billion euros in a stressed case. Savings banks, or cajas, have been locked out of wholesale debt markets amid investor concern about 181 billion euros of what the Bank of Spain terms “potentially troubled exposure” to construction and real estate.
Wall Street Journal:
Suicide Attack Rocks Moscow Airport. A suicide attacker detonated a bomb at Russia's busiest airport Monday, killing at least 31 people and wounding more than 100 others, authorities said. The 4:32 p.m. blast near the international arrivals area of Moscow's Domodedovo Airport was the country's worst terrorist attack since twin bombings left 40 dead in the Moscow subway last March.
Energy Power Shifts From the West. The center of the global energy industry is shifting away from the West as publicly traded companies in Russia, China and Brazil take more top spots in an influential global ranking of the world's energy giants.
Spain Can Still Avoid Financial Doom. And so we wait. We wait for the spate of new data on the health of the euroland economies, we wait for the policymakers to come up with some device that satisfies the markets that the eurocracy has come up with a structure that controls national budgets to the satisfaction of German Chancellor Angela Merkel, euroland's paymaster-in-chief. The waiting for data will end this week, at least for a while; the waiting for a policy decision might not arrive before Godot. Meanwhile, it is all about Spain, Europe's fifth largest economy. Greece is gone, Ireland is gone and Portugal is going—all will have to restructure one way or another. If Spain, larger than all three combined, can survive the tender attentions of the bond market, policymakers will have time for their usual leisurely decision-making pace.
India Government Bonds Fall Ahead of RBI Rate Meet; Rupee Down. Indian government bonds ended lower on Monday as traders avoided new positions a day ahead of the Reserve Bank of India's rate-setting meeting, where the central bank is widely expected to increase its policy rates to rein in growing inflation expectations. Post market hours, a Reserve Bank report said its main policy objective in the near term will be to control inflation, a statement which may pressure bonds in early session Tuesday. "Since a lower inflation regime is essential for sustainable high growth, containing inflation becomes the dominant policy objective in the current environment," it said in its third-quarter review of macro-economic and monetary developments, which provides cues going into the policy meeting. The market though ended lower, recovered from the day's lows when some traders bought bonds as yields rose following a government official's comments on inflation. "Our advisers on the economy tell me we are going to end the [fiscal] year with 9.0% inflation," Revenue Secretary Sunil Mitra told reporters at a conference. The RBI expects inflation at 5.5% at the end of March.
"On The Ground" First Person Report on Chinese Inflation. A Zero Hedge reader writes from the ground in China, and shares his first person perspective on just how real inflation has become in the world's most populous and thus most price margin sensitive, country. Inflation is HUGE. In every way and is so noticeable in daily life that we talk about it, well, everyday as everything we buy is rapidly increasing in price. The thing is, is that it doesn't affect my life that badly, except for my rent that increased 10% (which was low, compared to the city-wide 20% increase in 2010), because I'm in a high income level, for local Chinese standards. For example, a bowl of dumplings I typically get for lunch has gone from 3rmb ($0.44) to 4rmb ($0.59). That's a 25% increase and happened in one day. Again, clearly in USD terms you can see that doesn't bother me, but for the average Chinese, it kills them. Veggies have gone up 60% in some cases.
Cuomo's Budget Ax to Cut $1 Billion From NYC. Look out, Mike! Here comes Gov. Cuomo -- and he's wielding a brutal bud get ax. Mayor Bloomberg, who last week warned of multibillion-dollar city deficits over the next several years, will get more bad news next week when Cuomo presents a cut-to-the-bone budget that "slashes" state aid to New York City by $1 billion or more, sources said yesterday.
Eisman Hit by Losses Amid Departure Talk. After a high-profile bet against subprime mortgages brought him huge profits, star money manager Steve Eisman is having a tough time extending his winning streak. Eisman, a prominent hedge fund manager at FrontPoint Partners, has seen his assets under management fall along with fund performance in the past year. Eisman's FrontPoint Financial Services, which launched in 2004, was down 8.3 percent through Dec. 31, and FrontPoint Financial Horizons Fund slipped 7.7 percent. In 2010, the two funds were the firm's worst performers, according to reports sent to clients.
New York Times:
Increasingly Confident Fed Is Set for First Meeting of 2011. The Federal Reserve will use its first policy meeting of 2011 this week to revisit its economic projections amid a climate of modest but increasing confidence about the recovery. The statement it will issue on Wednesday, according to people familiar with the private deliberations of Fed officials, is likely to reflect a guarded optimism about the economy, while also maintaining the Fed strategy announced last November to accelerate the recovery by pumping $600 billion into the banking system.
Adobe(ADBE) Survey Finds Readers 'Engaged' With Ads on Apple's(AAPL) iPad. Adobe on Monday released the results of a new survey which found that advertisements in digital magazines on devices like the iPad can "more effectively engage readers and create stronger purchase intention" than in print.
Rahm Emanuel Booted Off Chicago Mayoral Ballot. A panel of appellate judges ruled 2-1 that Emanuel - well ahead in the polls and fundraising - did not meet the one-year residency requirement to be on the ballot for the Feb. 22 election.
Reuters:
Thailand Down 4% on Region Inflation Worries. Thailand's stock market fell 4.3 percent on Monday, leading most other Southeast Asian bourses down as foreign investors continued to bale out of markets they believe are vulnerable to growing inflationary pressures. Thailand .SETI posted its biggest loss since Oct 15, 2009, led by energy and banking shares. Indonesia .JKSE, the region's worst-performing bourse this year, lost 1 percent and the Philippines .PSI fell 1.2 percent to a 4-½ month low. On Monday, Indonesia and the Philippines saw net foreign outflows of $27.5 million and $14.7 million respectively. On Friday Thailand saw an outflow of $251 million. In baht terms, according to stock exchange data, it was the highest figure since May 24 last year when Bangkok was still picking itself up after bloody political protests. On Monday, the exchange recorded foreign selling of 4.05 billion baht ($132 million), according to exchange data. In the four weeks to Jan. 21, Thailand suffered outflows of $465 million, while Indonesia and the Philippines saw selling worth $280 million and $52 million respectively, according to Nomura Research.
Small Firms Not Spared in US SEC Say-On-Pay Rule. Small businesses and newly listed public companies will not be exempt from a new rule U.S. securities regulators are poised to adopt on Tuesday giving shareholders an advisory say-on-pay vote, according to a person familiar with the rule. The rule is expected to stir concerns among the Republican commissioners at the Securities and Exchange Commission, as well as some small businesses who have urged the SEC in their comment letters not to burden smaller companies with additional say-on-pay requirements.
No Bailouts for States - US House Leader Cantor. U.S. House of Representatives Majority Leader Eric Cantor said on Monday that he does not support any federal bailouts for states or allowing them to declare bankruptcy.
International Business Times:
JC Penney(JCP) Adds Investors Ackman, Roth to Board. Ackman, the chief executive officer of hedge fund firm, Pershing Square Capital Management, has a 16.5 percent stake in Penney. Steven Roth, chairman of Vornado Realty Trust (NYSE: VNO), will also join the board. Vornado owns about 9.9 percent of Penney.
McDonalds(MCD) Sees Food Costs Rising as Sales Slow.McDonald’s, the world’s biggest burger chain, said its food costs will rise this year, leading analysts to forecast the company will put up prices, as it reported weaker-than-expected December sales.
DigiTimes:
HP(HPQ) Cuts January Notebook Shipment Goal On Component Shortage, Say Sources. Hewlett-Packard (HP) has been forced to revise downward its notebook shipment goal for January due to a delay in shipments of some key parts and components from upstream suppliers, including CMOS sensors and CPUs, according to sources from notebook component suppliers.
Goldman's(GS) Long Bond Shows Inflation Concerns Are Waning. Goldman Sachs Group Inc.’s offering of 30-year bonds, its first in more than three years, signals waning concern among investors that inflation is accelerating. The fifth-biggest U.S. bank by assets received $9 billion in orders for its $2.5 billion of debentures sold on Jan. 21, according to Mizuho Securities USA. The 6.25 percent senior bonds yield 170 basis points more than similar-maturity Treasuries, at the low end of a 5-basis-point range marketed by the New York-based firm, data compiled by Bloomberg show. Economists are lowering forecasts for consumer price rises next year, with the median estimate declining to 1.9 percent this month from 2 percent in December, according to a Bloomberg survey of 55 economists. The record $13 billion auction of 10- year Treasury Inflation-Protected Securities on Jan. 20 attracted lower-than-average demand and the difference between yields on 10-year notes and TIPS narrowed the most since May. “People aren’t too worried about inflation,” said Anthony Valeri, market strategist with LPL Financial Corp. in San Diego, which oversees $293 billion. “Inflation expectations implied by TIPS are down this week,” Valeri said. “That’s probably motivating investors to feel more comfortable with long-term debt.” Yields on 10-year TIPS show bondholders expect the consumer price index to increase 2.19 percentage points a year on average over the life of the debt.
Swaps Climb to 2008 High as RBI 'Desperate' to Raise Rates: India Credit. The cost of locking in five-year interest rates in India has climbed to the highest level since 2008 as investors brace for the central bank to resume Asia’s most-aggressive tightening of monetary policy. The fixed rate to receive floating payments for five years in a swap contract surged 118 basis points in the past year, the most in Asia, to a 27-month high of 8.09 percent on Jan. 20, data compiled by Bloomberg show. The Reserve Bank of India will boost its repurchase rate tomorrow by 25 basis points to 6.5 percent, according to 21 of 22 economists in a Bloomberg News survey. Central bank Governor Duvvuri Subbarao said at a ceremony in Mumbai on Jan. 17 he is “desperate” to cool inflation that accelerated the most in 10 months in December to 8.43 percent. Deutsche Bank AG forecast this month that rates on India’s 2016 swaps, already twice as high as the 4.15 percent for the similar gauge in China, will advance further as investors use the contracts to guard against higher debt costs. “A 50-basis-point rate increase is probably what’s needed to bring inflation under control and the swap market is telling you just that,” K. Ramanathan, chief investment officer at ING Investment Management Pvt. in Mumbai, said in a Jan. 20 interview. “Monetary policy so far seems to have stayed a bit too pro-growth than was necessary.” Mumbai-based Credit Analysis & Research Ltd. predicted a 50 basis point increase, a move HSBC Holdings Plc and JPMorgan Chase & Co. also said is possible.
Chinese Corporate Bond Sales Have Busiest Start on Record. Chinese companies raised four times more from bonds than from equities this year in a record start for the debt market as government efforts to curb inflation curbed access to loans and the stock market. Corporate bond sales totaled 100 billion yuan ($15.2 billion) since Jan. 1, up 68 percent from a year earlier and the most since Bloomberg started tracking the data in 1999. “Regulators have strengthened their control over the amount of loans,” said Chen Jianbo, a Beijing-based fixed- income analyst at BOC International, a unit of Bank of China Ltd. “This has put an obstacle in the way of companies getting loans. On the other hand the regulators are encouraging direct financing, especially debt financing.” Slumping equity prices and restrictions on loan growth mean that bonds have become the only option for many companies to raise funds. China’s benchmark money-market rate has surged to the highest since October 2007 as lenders ran short of cash after the central bank’s four increases in their reserve requirements in the past three months. The seven-day repurchase rate, which measures money availability between banks, climbed 127 basis points to 7.3 percent, according to the daily fixing rate of the National Interbank Funding Center in Shanghai on Jan. 21, after reaching 8.8 percent earlier that day. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, has fallen 3.3 percent this year after plunging 14 percent in 2010. Five-year credit-default swaps on the nation’s bonds have risen nine basis points this year to 77 basis points on concern economic growth that’s averaged more than 10 percent over the past five years will be derailed on anti-inflation measures.
Metals Traders Worth $3 Million Amid Shortages as Wall Street Pay Shrinks. After a year when U.S. President Barack Obama signed a law curbing risk-taking on Wall Street and pay at banks fell, metals traders are reaping bonus bonanzas. The traders probably earned as much as 20 percent more last year than in 2009, with the most-profitable getting $2 million to $3 million, said Peter Henry, head of front-office search at Commodity Search Partners Ltd. The figure, confirmed by three other recruiters who declined to be identified because they aren’t authorized to speak publicly, compares with no change to a drop of 10 percent in pay across commodities personnel.
Speculation, Swings May Threaten Food Security, Ministers Say. Speculation and price swings in agricultural markets may threaten food security, 48 farm ministers meeting in Berlin said a month after a United Nations gauge of global costs reached a record. There is a risk of more food riots unless the surge in prices is contained, including through trading regulations, French Agriculture Minister Bruno Le Maire told reporters during the meeting Jan. 22. France chairs the Group of 20 this year, a group created in 1999 to stabilize global financial markets. “Food markets may not be the object of gamblers,” German Agriculture Minister Ilse Aigner said at a press conference during the meeting. “Food and agricultural commodities are not like anything else. Sometimes it’s about pure survival.” World food prices in total rose 25 percent last year and countries probably spent at least $1 trillion on imports, with the poorest nations paying as much as 20 percent more than in 2009, according to the United Nations. Governments from Beijing to Belgrade are boosting imports, limiting sales or releasing stockpiles to curb inflation and riots in Algeria and Tunisia this month were in part caused by food costs.
Iran Atomic Talks Break Down, No Decision on Further Discussions, EU Says. Discussions between world powers and Iran broke down today without any fresh commitment to hold future negotiations, said European Union Foreign Policy Chief Catherine Ashton. “We had hoped to have detailed, constructive discussions,” Ashton told journalists in Istanbul. EU diplomats were “disappointed” that Iran brought fresh preconditions to the Turkish city and demanded that United Nations sanctions be lifted before substantive talks about its nuclear work could begin, she said. The failure to achieve a breakthrough may raise tensions between Iran and the West. The U.S., which accuses Iran of harboring a secret nuclear-weapons program, has refused to eliminate military action as an alternative to stop the Persian Gulf country’s atomic work. Former U.K. Prime Minister Tony Blair said yesterday in London that the world must prepare to address the Iranian nuclear challenge. Blair warned of the “looming and coming challenge” of Iran, which he told a panel is destabilizing the Middle East and holding back modernization by supporting terrorism. “At some point, the West has got to get out of this wretched posture of apology for believing that we are causing what the Iranians are doing or what these extremists are doing; we are not,” he said.
SEC Recommends Common Fiduciary Standard for Brokers, Investment Advisers. The U.S. Securities and Exchange Commission is recommending a common fiduciary standard for brokers and registered investment advisers who provide personalized investment advice. The SEC said there’s a need for a uniform fiduciary standard “no less stringent than currently applied to investment advisers,” according to the staff report delivered to Congress yesterday. The common standard is needed because many retail investors don’t understand and are confused by the roles played by investment advisers and broker-dealers, the study said.
Trichet Expects EU to Agree on More Automatic Enforcement of Budgets Rules. European Central Bank President Jean-Claude Trichet expects the European Union to agree on more automatic sanctions for violations of its budget rules. “I hope very much and I would say I expect that this governance will be reinforced and that the quasi-automaticity for the start of the adjustment procedure and for the sanctions will be incorporated in the future governance,” Trichet said in an interview with Dutch television program “Buitenhof” broadcast today. ECB policy makers are increasing the pressure on governments to adopt stricter rules after swelling budget deficits helped trigger Europe’s sovereign-debt crisis, which so far has forced bailouts of Greece and Ireland. EU governments plan to sign off on their version of revamped crisis-fighting- rules by the end of March.
U.S. Gasoline Price Rises 2.99 Cents a Gallon to $3.11, Lundberg Reports. The average price for regular gasoline at U.S. filling stations increased 2.99cents to $3.11 a gallon, according to a survey. The current price of retail gasoline is 37 cents above the price of $2.74 a year ago. Crude inventories at Cushing, Oklahoma, the delivery point for New York futures, fell 571,000 barrels to 36.8 million. Supplies at the hub are 9.1 percent higher than a year ago. U.S. gasoline stockpiles rose 4.44 million barrels to 227.7 million, the highest level since March 5, according to the department. Gasoline demand, measured by deliveries to wholesalers, fell 0.5 percent to an average 8.78 million barrels a day, the fewest since Feb. 12.
Natural Gas Producer Bearish Bets Jump to Three-Year High: Energy Markets. Natural gas producers increased bearish bets to the highest in almost three years, joining hedge funds amid forecasts that near-record output will swell a fuel surplus. Producers and merchants increased net-short positions, or wagers on falling prices, on natural gas futures and options by 9.6 percent to 36,245 in the seven days ended Jan. 18, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest net-short position since March 2008 and the fourth straight week that they raised bets on declining prices.
RockTenn(RKT) Agrees to Acquire Smurfit-Stone Container(SSCC) for About $3.5 Billion. RockTenn Co. agreed to buy Smurfit- Stone Container Corp. for $3.5 billion, creating North America’s second-biggest containerboard producer. RockTenn, based in Norcross, Georgia, bid $35 a share in cash and stock for Chicago-based Smurfit-Stone, RockTenn said in a statement distributed by Business Wire. That’s 27 percent more than Smurfit-Stone’s closing price on Jan. 21.
Bullish Gold Bets by Funds Slump on Worst Price Slide Since 1997. Hedge funds are unloading bullish bets on gold as a slide in prices sends the metal to its worst start to a year since 1997. Holdings in silver dropped to the lowest since February. Managed-money funds held net-long positions, or wagers on rising prices, totaling 134,473 contracts on the Comex in New York as of Jan. 18, U.S. Commodity Futures Trading Commission data showed on Jan. 21. The gold holdings have plunged for three straight weeks, dropping 21 percent since the end of December, while net-long positions in silver are down 24 percent.
ICBC Gets U.S. Retail Network With Purchase of Bank of East Asia Unit. Industrial & Commercial Bank of China Ltd. agreed the first Chinese takeover of a U.S. retail bank, boosting financial ties between the two largest economies as President Hu Jintao concluded a four-day visit to the nation.
Wall Street Journal:
Trichet Warns Price Pressure Is Increasing.European Central Bank President Jean-Claude Trichet defended his hard-line stance on fiscal policy and inflation, saying budget austerity and vigilance in the face of rising energy and commodity prices are the best path to economic recovery. In an interview with The Wall Street Journal ahead of this week's annual meeting of the World Economic Forum in Davos, Switzerland, Mr. Trichet warned that inflation pressures in the euro zone must be watched closely, and urged central bankers everywhere to ensure that higher energy and food prices don't gain a foothold in the global economy. He signaled that he won't let the economic weakness in Greece, Ireland and other countries on Europe's troubled fringe delay ECB interest-rate increases if he sees threats to price stability. Mr. Trichet's warning comes at a time when inflation concerns are mounting among investors around the globe. "All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to…be very careful that there are no second-round effects" on domestic prices, Mr. Trichet said from his 35th-floor office at the ECB's headquarters overlooking Frankfurt's financial district. The 68-year-old Frenchman, whose eight-year term as head of the central bank ends in October, argued that budget discipline would help growth in Europe more than renewed stimulus, and called on the euro zone's 17 member countries to strengthen "surveillance" of each other's fiscal policies. In Europe, budget discipline benefits growth and job creation by "improving confidence of households, enterprises, investors and savers," Mr. Trichet said. His remarks come as the ECB must balance a widening debt crisis in Southern Europe and Ireland with a robust recovery in its largest member, Germany, and rising inflation throughout the euro bloc. Last month, inflation unexpectedly jumped to 2.2% in the euro zone from 1.9%, the first time in more than two years it has exceeded the ECB's target of just below 2%. Some economists think it will rise above 2.5% in the next two months. "In the U.S., the Fed considers that core inflation is a good predictor for future headline inflation," he said. But in the euro zone, "core inflation is not necessarily a good predictor." That implies the ECB could raise rates this year if it senses that companies and workers expect headline inflation to stay above 2% for some time—even if the main source of inflation is world commodity markets.Many economists worry that higher interest rates would do further damage in such countries, where the interest burdens on high private-sector debts are closely linked to the ECB's policy rates. Mr. Trichet rejected calls to take special heed of stragglers on the euro zone's fringe. "All countries in the euro area have an immense stake in the solid anchoring of inflation expectations," he said.
Is Steep Yield Curve Signaling Pain to Come? Some bond experts believe yields in the Treasurys market are signaling the U.S. could one day be stripped of its triple-A status as it confronts a bloated budget deficit with no clear plans to reduce debt. A peculiar distortion in the benchmark U.S. government-bond yield curve, which is the gap between two-year and 10-year yields, is pointing to worries that the U.S. could see its top-notch credit rating downgraded within several years, according to some experts.
European Tech More Pessimistic Than Global Competitors. European technology companies are more risk averse, more defensive, less interested in emerging markets and generally less confident than their global competitors according to a worrying report on risk attitudes commissioned by a London-based specialist international law firm. The report, published today, by Simmons & Simmons, paints a troubling picture of the European TMT sector; by contrast American and Asian companies appear to have a more positive approach, and more confident in their ability to face future challenges. “How businesses perceive their industry prospects is likely to affect how they see their key challenges relating to their position in the market,” the report cautions. “For those expecting industry growth, taking maximum advantage of these growing opportunities is particularly important. “In contrast, for those who foresee a declining market, the most pressing issues are the protection of their individual positions and prospects.”
Insider Probe Impact Felt by Pension Funds. The federal insider-trading probe is being felt beyond the world of hedge funds and "expert network" firms in New York and Silicon Valley. Investors in some of the hedge funds involved are struggling to get information and decide whether to sell their positions. The scandal hit close to home for the $10 billion School Employees Retirement System of Ohio: The pension fund is invested in two hedge funds raided as part of the investigation.
Beijing Hails Start of a New Era.Hu's Visit Is Credited With Putting China on Equal Footing With the U.S. For Chinese citizens following President Hu Jintao's visit to the U.S., the message from Communist Party propaganda czars is loud and clear: The world's dominant power is finally treating China as an equal, and Mr. Hu, who steps down as party chief next year, is the man to thank. State-controlled media have gone into overdrive to portray the visit as a resounding success and the start of a new era of bilateral relations, based on "mutual respect and mutual benefit," while Internet censors have scrubbed clean chat rooms and blogs of almost all comments that might suggest otherwise.
Point Man on U.S. Sanctions to Depart. Levey's Move Comes as Talks on Iran's Nuclear Program Stall. The point man for the Obama administration's financial wars on Iran, North Korea and al Qaeda, Stuart Levey, has decided to leave his senior U.S. Treasury Department post at what is turning out to be a particularly critical time. Mr. Levey's departure will leave President Barack Obama without the principal architect of Washington's economic-sanctions campaign against Tehran, just as that campaign is likely to be ramped up following the breakdown of talks among Iran, the U.S. and a bloc of global powers on Saturday.
Postal Service Eyes Closing Thousands of Post Offices. The U.S. Postal Service plays two roles in America: an agency that keeps rural areas linked to the rest of the nation, and one that loses a lot of money. Now, with the red ink showing no sign of stopping, the postal service is hoping to ramp up a cost-cutting program that is already eliciting yelps of pain around the country. Beginning in March, the agency will start the process of closing as many as 2,000 post offices, on top of the 491 it said it would close starting at the end of last year.
Web Tool On Firefox Browser to Deter Tracking. Mozilla Corp. plans to add a do-not-track feature to its Firefox Web browser, which could let users avoid having their actions monitored online. The announcement makes Firefox the first Web browser to heed the Federal Trade Commission's call for the development of a do-not-track system.
Morgan Stanley(MS) Banker Ensnared in Galleon Case. A Morgan Stanley banker is under investigation by prosecutors for allegedly leaking information that was relayed to Galleon Group hedge-fund founder Raj Rajaratnam about a 2006 merger involving Advanced Micro Devices Inc., people close to the situation say.
Warning From S&P on Munis. Downgrades of bonds issued by state and local governments could increase this year, according to a report to be issued Monday by credit-rating agency Standard & Poor's.
More Hiring Expected as Gloom Starts to Lift. U.S. companies optimistic about the economy plan to hire more workers in coming months, a quarterly survey released Monday found, another signal that the jobs market is turning up. The fourth-quarter poll of 84 companies by the National Association for Business Economics found 42% expected to increase jobs in the next six months. That is up from 29% in the first quarter of 2010. Only 7% of companies in the latest survey predict they will shed jobs in the coming six months, down from 23% at the start of last year.
Commodities Prices Are Hitting Your Wallet. It's getting pricier to throw some ribs and burgers on the grill. And you can blame the surging price of corn. That's because much of the corn grown in the U.S. is used as animal feed. And "we're using $6 corn to feed hogs right now," up from about $4 last year, says Michael Swanson, an agricultural economist at Wells Fargo in Minneapolis. "Either the hog guy is going to go out of business or you're going to pay more for pork." So if you "want barbecue ribs," he adds, "you're going to have an extra $10 attached to it." A lot of manufacturers and retailers are expected to bump up prices this year on many basics -- from ribs to coffee to khaki pants -- as they pass along the escalating prices of the commodities, or raw materials, they use.
Fed Signals Seen Raising Treasury Yields 60 Basis Points in '11. Federal Reserve Chairman Ben S. Bernanke and his colleagues may shift from focusing on the gap between actual and optimal employment to an emphasis on the economy’s speed limit in the months ahead.“By the middle of the year, the economic momentum will be building, and all the hawks are going to be crazy about tightening,” said Laurence Meyer, a former Fed governor who’s now vice chairman at St. Louis-based Macroeconomic Advisers, referring to officials who concentrate on fighting inflation. Policy makers, who meet this week to plot monetary strategy, will begin to increase the benchmark federal funds rate in January 2012, he predicted. The yield on the two-year Treasury note will rise to 1.25 percent by the end of this year from 0.609 percent on Jan. 21 as it becomes clear that a Fed move is coming, said David Greenlaw, chief financial economist at Morgan Stanley in New York.
JPMorgan(JPM) Pays Dimon's Top 15 Executives $73 Million in Shares. JPMorgan Chase & Co. awarded Chief Executive Officer Jamie Dimon’s top 15 executives more than $73 million in restricted shares, plus stock options, for their performance last year. The bank, the second-largest in the U.S. by assets, granted 1.67 million shares and an almost equal number of options to Dimon’s operating committee on Jan. 19, according to filings yesterday to the U.S. Securities and Exchange Commission. The stock grants’ value is based on the $43.71 closing price on the date of the awards. The New York-based firm hasn’t yet disclosed Dimon’s stock compensation for 2010.
Morgan Stanley's(MS) Gorman Received $7.4 Million in Stock, Options for 2010. James Gorman, Morgan Stanley’s chief executive officer since last January, was awarded deferred stock and options valued at about $7.4 million for his performance in 2010, when the firm’s shares trailed rivals. Gorman’s total compensation for last year is less than what he received for 2009, when he got a $15.1 million package, according to a person briefed on the matter who declined to be identified because the figures aren’t yet public. The company’s shares slid 8.1 percent in 2010.
China Property Prices Defy Beijing's Cooling Measures. Despite moves by the Chinese government to tame its property sector, the market has remained stubbornly resilient, with property prices in the nation's major cities posting their fourth straight month-on-month rise in December and sales picked up pace, the National Bureau of Statistics said over the weekend.
Mortgage Giants Leave Legal Bills to the Taxpayers. Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress. The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.
Judge OKs Settlement That Limits Use of Seniority in L.A. Teacher Layoffs. In a case that pits the constitutional rights of students against the job protections of teachers, a Los Angeles County Superior Court judge approved a groundbreaking settlement Friday that limits the effect of layoffs on the district's most vulnerable students. Up to 45 Los Angeles Unified School District campuses will be shielded from teacher layoffs altogether, Judge William F. Highberger ordered Friday, and layoffs in the district's other 750 schools must be spread more equitably. That could lead some experienced teachers to lose their jobs. The decision comes amid deep education cuts and a debate over teacher tenure rules, which are being challenged across the country. New Jersey Gov. Chris Christie recently called for the end of tenure, as have leaders in Florida, Idaho, Wyoming and elsewhere.
Obama Picks Jeffrey Immelt, GE(GE) CEO, To run New Jobs-Focused Panel as GE Sends Jobs Overseas, Pays Little In Taxes. Jeffrey R. Immelt, the chairman and chief executive of General Electric Co. tapped by President Barack Obama as his next top outside economic adviser, will be asked to guide the White House as it attempts to jump-start lackluster job creation and spur a muddled recovery. Immelt's firm stands as Exhibit A of a successful and profitable corporate America standing at the forefront of the recovery. GE also represents the archetypal company that's hoarding cash, sending jobs overseas, relying on taxpayer bailouts and paying less taxes than envisioned.
Politico:
McConnell Assures Senate Health Care Vote. Senate Minority Mitch McConnell promises the Senate will hold a vote on health care repeal, even though Democrats still control the upper chamber. "I don't know why the Democrats don't want to vote on it. They're proud of it," the Kentucky Republican said on "Fox News Sunday." "If they don't want to have the vote, we'll have the vote. I'm not going to discuss how we'll do it from a parliamentary point of view here," he added. " But it's very hard to deny people votes in the Senate, and I can assure you we'll have a vote on a repeal." "It's the single worst piece of legislation passed in my time in the Senate," he said.
Giffords Remains in Hospital ICU. The Houston hospital treating Rep. Gabrielle Giffords said Sunday that her condition is improving daily, but gave no update on the buildup of brain fluid that has kept the Arizona congresswoman in intensive care. A hospital statement said Giffords (D-Ariz.) would continue to receive therapy in the intensive care unit “until her physicians determine she is ready for transfer” to a nearby center where she would begin a full rehabilitation program.
Cantor Seems to Confirm $60 Billion in Cuts Now, More Later. House Majority Leader Eric Cantor (R-Va.) on Sunday appeared to confirm that House Republicans would stretch out their pledge to cut $100 billion in spending over the 2011 and 2012 budgets.
USA Today:
Tests Find High Levels of Lead in Reusable Bags. Twenty-one reusable bags sold as alternatives to disposable plastic or paper bags had dangerous levels of lead, according to new test results provided to USA TODAY. The non-woven-polypropylene bags bags, sold by chains including Safeway, Walgreen's and Bloom, all had lead content above 100 parts per million — the highest level that many states allow in consumer packaging.
Don't Rule Out Debt Buy-Back Idea-Juncker In Magazine.European leaders should not shy away from a proposal to buy back the bonds of troubled euro member states but should not rely too much on rich countries, Eurogroup Chief Jean-Claude Juncker said. "It would be wrong to create taboos but we cannot overstretch the strong countries," Juncker said in an interview with German magazine Der Spiegel seen by Reuters on Saturday ahead of publication. A source told Reuters on Thursday that euro zone ministers are considering whether the bloc's rescue fund could buy back bonds of debt-ridden states, a plan Portugal said it supported. Der Spiegel magazine also reported in an unsourced reported that the idea of a buy-back, which it said was first raised by the European rescue fund's chief Klaus Regling, had been greeted with sympathy by euro zone finance ministers this week. Without citing any sources, Der Spiegel said Regling's suggestion stood good chances of becoming reality. "The measure has good prospects of being signed off as part of a comprehensive package to stabilise the euro zone at the European Council in March," it said in a pre-publication release. It also cited an unnamed high-ranking German finance ministry source as saying this was a good idea, running counter to official German denials this week. "I wouldn't know of anyone in the Finance Ministry who would have said that," a spokesman for the ministry told Reuters, declining to comment on the Der Spiegel report. Greece and Germany have insisted Greece, the first to succumb in the currency bloc's debt crisis, needed no help with debt repayments.
US House Leader: Debt Limit Hike Must Be Tied to Cuts. U.S. House of Representatives Majority Leader Eric Cantor said on Sunday his fellow Republicans would not vote to increase the U.S. debt limit unless it was coupled with spending cuts and reforms.
European Banks Set for Staff Exodus to US Rivals Over Pay Rules. Europe's banks are facing an exodus of staff to US rivals as regulatory and political pressure drives a growing pay divide between financial institutions headquartered on either side of the Atlantic.
El Pais:
Bank of Spain Governor Miguel Angel Fernandez Ordonez may force three of the weakest regional savings banks known as cajas to turn themselves into regular banks, allowing easier access to capital markets.
Thoi Bao Kinh Te:
First Solar Inc.(FSLR) has received a Vietnamese investment permit to build a $1 billion factory in Ho Chi Minh City. The U.S. company plans to build the factory to produce solar power panels.
Market News International:
China International Capital Corp.(CICC) forecasts a January increase in China's consumer price index of 5.5% on year, because of pressure from prices over the Chinese New Year holiday, citing a report from the investment bank. CICC expects the central bank to raise interest rates once in each of the first two quarters, citing the report. The yuan may appreciate as much as 7% over the year, the report said.
Economic Information Daily:
China may reduce or cancel tax rebates on exports of some commodities as part of efforts to limit shipments of resources overseas, citing a person familiar with the situation. The efforts may include limiting exports of rubber, non-ferrous metals, steel and construction materials, citing the person.
Financial News:
China's "inflexible" yuan leads to high manufacturing and resource prices, citing Zhang Bin, a researcher with the Chinese Academy of Social Sciences. China should used foreign exchange policies to curb inflation, citing Zhang.
Economic Observer:
China's housing ministry will pressure the governments of second and third tier cities, which have had "relatively large" increases in home prices, to impose limits on property purchases.
China National Radio:
Apple Inc.(AAPL) won approval to sell its 3G iPad tablets in China, citing a statement from the nation's Ministry of Industry and Information Technology.
Weekend Recommendations Barron's:
Made positive comments on (NVDA).
Made negative comments on (CRM).
Night Trading
Asian indices are -1.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 106.5 -3.5 basis points.
Asia Pacific Sovereign CDS Index 119.50 +3.0 basis points.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on profit-taking, more shorting, profit margin concerns, technical selling and emerging markets inflation worries. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.
