North American Investment Grade CDS Index 83.18 +1.69%
European Financial Sector CDS Index 135.50 bps +5.62%
Western Europe Sovereign Debt CDS Index 177.83 bps +1.52%
Emerging Market CDS Index 202.85 +2.36%
2-Year Swap Spread 22.0 unch.
TED Spread 16.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 274.0 -7 bps
China Import Iron Ore Spot $185.40/Metric Tonne +.22%
Citi US Economic Surprise Index +42.20 +6.5 points
10-Year TIPS Spread 2.23% +5 bps
Overseas Futures:
Nikkei Futures: Indicating -64 open in Japan
DAX Futures: Indicating +17 open in Germany
Portfolio:
Higher: On gains in my Retail, Tech, Biotech and Medical long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs, despite recent equity gains, rising eurozone debt angst, worries over emerging markets inflation and financial sector weakness. On the positive side, Retail, REIT, HMO, Hospital, Medical, Telecom, Computer Services and Defense shares are especially strong, rising more than .5% today. (IYR) has traded well throughout the day. A number of key tech stocks are also outperforming. The 10-year yield is falling -8 bps to 3.32%. Moreover, the European Investment Grade CDS Index is dropping another -1.15% to 76.99 bps, which is also a large positive. The Citi US Economic Surprise Index is now at the highest level since April 12th of last year. US scrap steel prices are up another +5.7% over the last 5 days. Oil continues to trade very poorly, given recent positive economic data and euro strength. On the negative side, Alt Energy, Disk Drive, Networking, I-Banking, Construction, Gaming and Education shares are under pressure, falling more than 1.0%. (XLF) has underperformed again throughout the day. Copper is falling -2.7% and Lumber is down -2.6%. The Spain sovereign cds is rising +4.18% to 265.94 bps, the Italy sovereign cds is gaining +4.4% to 186.44 bps and the Portugal sovereign cds is rising +3.35% to 446.59 bps. I suspect stocks will build on this afternoon's rally tomorrow morning. The Fed announcement is unlikely to bring any meaningful surprises tomorrow afternoon. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism, less real estate sector pessimism, falling long-term rates and technical buying.
Consumer Confidence in U.S. Rose More Than Forecast. Confidence among U.S. consumers rose more than forecast in January to the highest level in eight months as Americans became more optimistic about job prospects. The Conference Board’s index of sentiment increased to 60.6 from a revised 53.3 the prior month that was higher than previously estimated, figures from the New York-based private research group showed today. Economists projected the January gauge would rise to 54, according to the median forecast in a Bloomberg News survey. A pickup in optimism, an improving labor market and tax relief may combine to encourage consumers, whose spending accounts for about 70 percent of the economy. The share of Americans who said jobs were plentiful rose to the highest level since May 2009, while those expecting an increase in incomes climbed to an eight-month high. The Conference Board’s measure of present conditions rose to the highest since November 2008. The index averaged 96.8 during the last economic expansion that ended in December 2007. The Conference Board’s index of present conditions increased to 31 from a revised 24.9. The gauge of expectations for the next six months rose to 80.3 from 72.3. The percent of respondents expecting more jobs available in the next six months rose to 16 from 14.2 the previous month. The proportion who expect their incomes to rise over the next six months increased to 11.4, the highest since May, from 9.9 percent. The share of consumers who said jobs are currently plentiful rose to 5.2 percent from 4.2 percent. Those who said jobs are hard to get decreased to 43.4 percent from 46.0 percent. Confidence rose in all nine U.S. regions, led by a 21.3-point surge in the West South Central area, which includes Texas and Oklahoma.
Commercial Property Debt Soars to Highest Since 2008 on Bet Worst is Over. Debt investors are wagering that the worst is over for commercial real estate, driving prices on mortgage bonds to the highest in more than two years. “Investors have gotten more comfortable and have started putting money back into CMBS,” Chris Callahan, head of commercial-mortgage backed bond trading at Credit Suisse Group AG, said in an interview at the Commercial Real Estate Finance Council’s conference in Washington. “It has gone from being the red-headed stepchild to being a viable asset class again.” Investors are buying bonds tied to hotel, shopping center and skyscraper loans as more financing becomes available to borrowers, helping halt a slide in real-estate values. U.S. commercial property prices, which have declined 42 percent from their peak in 2007, rose for the third consecutive month in November, Moody’s Investors Service said in a statement yesterday. So-called junior AAA commercial-mortgage backed securities, which are less insulated from losses than senior and mezzanine AAA classes, have increased almost 21 percent to 87 cents on the dollar during the past three months, according to data compiled by JPMorgan Chase & Co. The bonds, valued at about 51 cents six months ago, are at the highest levels since June 2008, JPMorgan data show. Sales of commercial-mortgage backed securities are poised to climb to $45 billion this year, according to JPMorgan, after banks arranged $11.5 billion of the debt in 2010. Rising sales make it easier for property owners with maturing loans to refinance.
China to Start Stockpiling Rare Earths, Caijing Says. China will start stockpiling rare earth minerals this year, Caijing magazine reported today, citing an unidentified official at the China Nonferrous Metals Industry Association. The report didn’t say when the stockpiling would begin or give other details.
IMF Raises 2011 Global Growth Forecast to 4.4%, Says Risks Still Elevated. The International Monetary Fund raised its forecast for global economic growth this year, reflecting stronger U.S. output based on tax-cut extensions, while emerging nations lead the recovery. The world economy will grow 4.4 percent, more than the 4.2 percent expected in October. Expansion next year is projected to reach 4.5 percent, unchanged from October, the IMF said today in an update to its World Economic Outlook report.
Oil Drops to Eight-Week Low Ahead of Forecast U.S. Inventory Gain, OPEC. Crude oil fell to its lowest in almost eight weeks amid speculation OPEC may boost output and before a U.S. report that may show supplies in the world’s biggest crude user rose last week. An Energy Department report tomorrow will probably show U.S. crude inventories climbed 1.25 million barrels last week, according to a Bloomberg News survey. Oil for March delivery declined as much as $1.57, or 1.8 percent, to $86.30 a barrel in electronic trading on the New York Mercantile Exchange, its lowest price since Dec. 2, and was at $86.72 at 1:24 p.m. London time. Al-Naimi’s comments “indicate that the Saudis find increasing discomfort as oil approaches triple digits,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “It’s not due to supply tightness that we have $90 to $100 oil. We do have a well-supplied market today, a lot of inventories, a lot of spare OPEC production capacity.” “OPEC’s policy, as is well known, is to meet any increase in oil demand to maintain the supply-demand balance,” al-Naimi said. “Some OPEC countries will increase their production capacities, thus maintaining OPEC’s spare capacity at approximately 6 million barrels per day.”
Apple(AAPL) Plans Service That Lets iPhone Users Pay With Handsets. Apple Inc. plans to introduce services that would let customers use its iPhone and iPad computer to make purchases, said Richard Doherty, director of consulting firm Envisioneering Group. The services are based on “Near-Field Communication,” a technology that can beam and receive information at a distance of up to 4 inches, due to be embedded in the next iteration of the iPhone for AT&T Inc. and the iPad 2, Doherty said. Both products are likely to be introduced this year, he said, citing engineers who are working on hardware for the Apple project. Apple’s service may be able to tap into user information already on file, including credit-card numbers, iTunes gift-card balance and bank data, said Richard Crone, who leads financial industry adviser Crone Consulting LLC in San Carlos, California.
India Raises Benchmark Interest Rate to Two-Year High to Slow Inflation. India’s central bank raised the benchmark interest rate to a two-year high and signaled further increases in borrowing costs as it boosted the country’s inflation forecast. Governor Duvvuri Subbarao lifted the repurchase rate to 6.5 percent from 6.25 percent, according to a statement from the Reserve Bank of India in Mumbai today.
BRIC Inflation Threatens Priciest Consumer Stocks as Food Bills Increase. Emerging-market consumer companies are valued at the most expensive levels on record just as surging food and energy costs curb household spending from Sao Paulo to Shanghai. Shares in the MSCI Emerging Markets Consumer Discretionary Index traded at a 15-year high of 2.6 times net assets last week, data compiled by Bloomberg show.
Google's(GOOG) Schmidt to Stay 'As Long as It's Exciting'. Google Inc.’s Eric Schmidt said he has no plans to leave the owner of the world’s largest search engine, dismissing speculation he’s considering a career in the media or politics.
Goolsbee Says Obama to Focus on Economy in His Speech. President Barack Obama would consider lowering corporate taxes as one of a variety of proposals intended to boost the economy, Austan Goolsbee, chairman of the U.S. Council of Economic Advisers, said today. “The president’s open to all different ways to boost competitiveness,” Goolsbee said on Bloomberg Television. “The president’s focus is how do we win the future and how do we get the economy growing?” In previewing Obama’s State of the Union address, which is scheduled for tonight, Goolsbee said Obama will focus on the economy, the federal budget and the deficit. Goolsbee also cited a U.S. corporate tax code that’s full of “a lot of loopholes and carve-outs,” and said Obama “would be open to broadening the base and lowering the rate to make American companies that are competing with companies from abroad more competitive.”
Harley-Davidson(HOG) Shares Rise Most Since October as Loss Narrows. Harley-Davidson Inc., the biggest U.S. motorcycle maker, rose the most in more than three months after its fourth-quarter loss narrowed and its financial- services unit posted a profit. Harley climbed $2.91, or 8 percent, to $39.40 at 11 a.m. in New York Stock Exchange composite trading.
Christie Says He'll Go to Tax-Raising Illinois to Lure Jobs to New Jersey. New Jersey Governor Chris Christie said he intends to go to Illinois next week to lure jobs from business executives angered about personal income and corporate tax increases its governor and Legislature enacted this month. The trip coincides with advertisements that his administration began running today in publications including the Chicago Tribune and Springfield (Illinois) Journal, encouraging businesses to relocate and invest in New Jersey, Christie said. The first-term New Jersey governor said he sees opportunity in Illinois Governor Pat Quinn’s decision to increase the income tax by two-thirds and corporate taxes to 7 percent from 4.8 percent to help reduce a deficit of at least $13 billion. “If he wants to tank his economy, that’s just fine,” Christie, a 48-year-old Republican, said in an interview at Bloomberg News headquarters in New York today. “I’ll go and try to collect as many businesses as I can, and every job that I create, that I take from Illinois, which comes to New Jersey, will be a net plus for us.” Quinn, 62, a Democrat elected Nov. 2, supported the state’s record tax increase, saying it would help resolve a crisis that had the state “careening toward bankruptcy and fiscal insolvency.”
Wall Street Journal:
Accounting Board Backs Off 'Mark to Market' Push. Accounting rule makers took a key step Tuesday to reverse a proposal that would have required banks to value their loans based on the ups and downs of the market.
A 2nd I.R.S. Amnesty for Offshore Accounts. The Internal Revenue Service said on Monday that it would soon announce a new amnesty program aimed at encouraging wealthy Americans with hidden offshore bank accounts to come forward, declare their money and pay taxes owed.
Investment News:
Can Anybody Fix Goldman's(GS) Brokerage? Despite a parade of new bosses, bank's asset management unit still sputtering; 'butter their own bread and charge huge fees.'
Energy Intelligence Group:
Venezuela will resume gasoline shipments to Iran after a pause of more than two years. State-run Petroleos de Venezuela SA has agreed to supply two 30,000-ton cargoes gasoline cargoes per month to Iran, EIG said in its International Oil Daily newsletter, citing Middle East trading and shipping sources that it did not identify. The first cargo is due to arrive at the port of Bandar Abbas in early February, the report said. The shipments are a gesture of goodwill from Venezuela after U.S. and European sanctions restricted the supply of fuel imports into Iran, EIG said.
Voters Wary of State of the Union Spending Proposals. A new Rasmussen Reports national telephone survey finds that 39% of Likely U.S. Voters favor the federal government spending more money in areas like education, transportation and technological innovation. Forty-five percent (45%) oppose additional government spending like this, while 15% more are not sure about it.
Telegraph:
UK Economy Suffers Shock Contraction.Britain's economy shrank unexpectedly in the final three months of the year as heavy snow compounded a slowdown in growth. Gross domestic product fell 0.5pc in the fourth quarter, the most in more than a year, the Office for National Statistics reported on Tuesday. The decline compared with growth of 0.7pc in the third quarter.
IMF Chides US for Fiscal Folly. The International Monetary Fund (IMF) has issued its clearest warning to date that the latest US fiscal stimulus is ill-judged, unlikely to do much for growth and raises the risk of a bond crisis over the medium term.
Kauppalehti:
Apple Inc.(AAPL) and Google's(GOOG) Android smartphone sales are booming in the Nordic countries, at the expense of Nokia Oyj(NOK) models, citing Fredrik Rudberg, managing director at Swedish handset distributor Mobile 20:20. "Almost all the smartphones we sell nowadays are Apple and Android - Nokia phones just don't sell," Rudberg said.
Xinhua:
China's northern city of Tianjin plans to raise minimum monthly wages by 16% to about 1,070 yuan, citing the city's human resources and social security work meeting.
Chinese farm-produce prices gained in the week ended Jan. 23 from the previous seven days, their fourth consecutive increase, on freezing weather in China's south, citing the Ministry of Commerce. The wholesale price of 18 staple vegetables increased 12.6% and the prices of green peppers, cucumbers, chili peppers and beans gained at least 10%.
Shanghai Daily:
Economists Say Rates Will Rise. CHINA may raise benchmark interest rates next month to tackle inflation and curb liquidity, economists said yesterday. The central government has made inflation a policy priority and another interest rate increase looms, said Lu Zhengwei, an Industrial Bank senior economist. "Another interest rate increase and another reserve requirement ratio increase are both expected in February," Lu said. He forecast an inflation rate of 5.3 percent this month, which he said would push policy makers to increase rates.
CCTV:
China central bank adviser Li Daokui said oil prices at $100 a barrel will have a negative impact on the nation's economy, according to China's state television.
American Market Preferred in Global Poll on New Confidence. Global investors are taking more risks with their money and targeting the U.S. as one of the best places to put their funds as they grow increasingly confident in the economic outlook. More than two of five of those surveyed say they are seeing more opportunities to make money, according to a quarterly Bloomberg Global Poll of 1,000 investors, analysts and traders who are Bloomberg subscribers. That’s the highest level since the poll began in July 2009 and compares with less than one in three who are still hunkering down. The rest of investors in the poll conducted Jan. 20-24 describe the economic environment as getting back to normal. “The recovery is materializing and global profit margins for 2011 probably are set to reach a new record,” says Angelo Meda, a participant in the poll and a portfolio manager for Banknord in Milan, which oversees more than $1 billion.
Rescue Fund Borrows as Merkel Blocks Common Debt: Euro Credit. The European Financial Stability Facility holds its debut bond sale today as policy makers trumpet reduced debt-market tensions as a reason to abandon talk of a common borrowing program in the euro area. The Luxembourg-based EFSF is selling as much as 5 billion euros ($6.8 billion) of five-year notes backed by guarantees from euro members, funds that will help pay for Ireland’s bailout. While Greek Prime Minister George Papandreou said on Jan. 21 there is a “wider consensus for euro bonds,” Germany, the region’s biggest economy, opposes the idea. Luxembourg Prime Minister Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti proposed joint sales in a Dec. 6 Financial Times article as a potential solution to soaring interest rates for the common currency’s most indebted users. With France and Austria reinforcing Germany’s opposition to the concept, officials have proposed alternatives, including boosting the size of the bailout package and using EFSF funding to buy government debt or to recapitalize banks in the region. “We still have some smaller countries pushing for the idea of euro-zone bonds,” said Steve Barrow, head of research for Group of 10 currencies at Standard Bank Plc in London. “It’s not something I could envisage many policy makers going into willingly. It’s more likely to be a desperation measure.”
Cocoa Tests 1979 Peak as Ivory Coast Political Unrest Spurs Supply Risks. Cocoa may climb to the highest price since the late 1970s as political unrest disrupts supplies from Ivory Coast, the world’s biggest producer. Hedge funds have more than quadrupled bets on a cocoa rally since early December after a disputed election left Ivory Coast with two rival presidents. Alassane Ouattara, recognized internationally as the winner, yesterday ordered shipments halted to cut off funds to incumbent Laurent Gbagbo. The ban may send prices to as high as $3,720 a metric ton, a Bloomberg survey of six analysts showed. That would be the highest since January 1979. Cocoa has jumped 9.1 percent this month, the biggest gain after cotton among the 19 commodities tracked by the Thomson/Reuters Jefferies CRB Index. Cargill Inc., the largest closely held U.S. company, said yesterday it temporarily suspended bean purchases in Ivory Coast. Climbing prices may mean higher costs for Hershey Co., Mars Inc., Barry Callebaut AG, the world’s biggest maker of bulk chocolate.
BofA(BAC) Putbacks May Cost $8.5 Billion as Lawyers "Smell Blood'. Bank of America Corp., the biggest U.S. lender, may book an $8.5 billion charge on costs to resolve disputes over faulty mortgages, a figure at the upper end of the range the company gave last week, according to Oppenheimer & Co.
China Mutual Funds Boost Stock Holdings Near to Record Even as Shares Drop. China’s mutual funds boosted their stock holdings to a near-record high, a signal to fund trackers that investors are overly optimistic and equities may decline further. The nation’s 325 mutual funds invested 83.2 percent of their assets in equities during the fourth quarter, near a record of 83.8 percent in the last three months of 2009, Yan Gaojian, an analyst at Citic Securities Co., wrote in a report. The Shanghai Composite has lost 15 percent since a Nov. 8 high after the central bank raised the reserve requirement ratio for banks and interest rates to counter inflation. Consumer prices rose to a 28-month high of 5.1 percent in November before slowing to 4.6 percent last month.
AIG's(AIG) Benmosche Expects to Remain CEO Until 2012. Robert Benmosche, the American International Group Inc. chief executive officer battling cancer, expects to remain on the job until next year after consulting with doctors.
Countrywide Sued Over Mortgage-Backed Securities. Bank of America Inc.’s Countrywide Financial unit was sued by investors in mortgage-backed securities who alleged a “massive fraud” in a complaint filed today in New York state court. TIAA-CREF Life Insurance Co., New York Life Insurance Co., and Dexia Holdings Inc. are among about a dozen plaintiff institutional investors in mortgage-backed securities issued by Countrywide’s subsidiaries, according to the complaint.
Crude Oil Inventories Climb in Survey as Imports Increase: Energy Markets. U.S. crude supplies probably rose a second week as imports increased and refineries operated at the lowest rate since November, a Bloomberg News survey showed. Inventories climbed 1.25 million barrels, or 0.4 percent, in the seven days ended Jan. 21 from 335.7 million a week earlier, according to the median of 12 analyst estimates before an Energy Department report tomorrow.
Government Subsidy Cuts Raise Risk of Riots, UN's Sheeran Says. Risks of global instability are rising as governments cut subsidies that help the poor cope with surging food and fuel costs to ease budget crunches, the head of the United Nations’ World Food Program said. “We’re in an era where the world and nations ignore the food issue at their peril,” Josette Sheeran said in an interview yesterday at the agency’s Rome headquarters. The global recession has eroded government aid that helped people in poorer countries afford bread, cooking oils and other staples.
China's Banks Pay Record Deposit Rate for Government Cash; SHIBOR Climbs. China’s commercial banks, facing a cash shortage before the Chinese New Year holiday, offered record-high deposit rates to secure 30 billion yuan ($4.6 billion) of government money at an auction today. The benchmark money-market rate jumped the most in three years. The finance ministry obtained a six-month deposit rate of 5.9 percent, up from 5.4 percent at a similar-sized auction last month, according to statements on the website of the People’s Bank of China. That’s the highest rate paid in data going back to December 2006. The central bank’s benchmark six-month lending rate is 5.35 percent. The seven-day repurchase rate, which measures money availability between banks, jumped 2.85 percentage points, to a three-year high of 7.65 percent, according to a daily fixing by the National Interbank Funding Center in Shanghai. The increase was the biggest since January 2008. The three-month Shanghai Interbank Offered Rate, also a gauge of liquidity in the financial system, was fixed 20 basis points higher at a record 5.25 percent.
Fed Likely to Press On With Asset Purchases Even as Business Lending Rises. The Federal Reserve will probably push forward with $600 billion in securities purchases even as the biggest jump in business loans in more than two years adds to signs the U.S. economy is gaining strength. Commercial and industrial loans increased at an annual rate of 7.6 percent last month, the largest gain since October 2008, according to Fed data. Total bank credit has risen in three of the past six months as business loans cushioned against declines in real estate and consumer credit. Bernanke and his fellow policy makers will probably note improvements in the economy such as higher consumer spending in a statement to be released tomorrow, former Fed governor Lyle Gramley said. Encouraging signs like firmer bank credit are unlikely to prompt a reduction in stimulus so long as growth remains weak and unemployment persists near 10 percent, he said. “The Fed is not ready to let up on its accelerator,” said Gramley, senior economic adviser for Potomac Research Group in Washington. “They are going to be impressed with the fact the economy has gained some momentum, but there are still strong headwinds to growth, and bank lending is quite modest.”
Wall Street Journal:
Amazon(AMZN) May Expand Free Home Delivery. Amazon.com Inc. may be planning to expand a free home-delivery program, a move that analysts say could encourage consumers to do more of their shopping for groceries and other goods with the online retailer rather than local stores. The service, AmazonTote, is currently available only around Seattle, where the company is based. The program offers customers a free weekly delivery on a specified day and doesn't require a minimum-order size.
North Face Deal Signals Rise of Freeskiing. The United States Ski and Snowboard Association plans to sign a lucrative deal with outfitter The North Face that is expected to be announced Tuesday. The deal signals the continuing rise of freeskiing.
White House Energy 'Czar' to Exit in Staff Shake-Up. Carol Browner is leaving her position as White House "energy czar," and a staff shake-up is likely to eliminate her post altogether, according to Democrats familiar with events. The "czar" position, and Ms. Browner herself, have been lightning rods for critics of the president's environmental-policy agenda and a reassurance to its supporters, who liked having a top official in the White House devoted to their priorities. Ms. Browner led the administration's effort to gather votes in Congress for legislation to limit emissions of greenhouse gases. The effort unraveled in the Senate last year, amid opposition from Republicans and some Democrats fearful of its impact on energy prices and jobs. Ms. Browner was also a heroine to many environmentalists who cheered her decisions when she led the EPA in the 1990s and viewed her as an ally in internal administration debates over environmental regulation. Her influence within the administration has long been a source of concern to Republicans critical of her record in the Clinton administration. Fred Upton, the new chairman of the House Energy and Commerce (R., Mich.), had suggested in recent weeks that he intended to investigate Ms. Browner's authority.
Private Equity Makes Return to IPO Game. What private-equity honchos once received from initial public offerings: instant cash, heady gains and quick exits from their investments. What they likely will get from a coming surge of IPOs: muted initial gains, help reducing staggering debt loads and hope of finally handing some cash back to investors.
A 'Short' Plays Washington. When the U.S. Education Department set out to craft rules that would affect for-profit education companies, it drew input from a wide range of people, from executives in the business to consultants and education activists. It also heard from a group less commonly involved in Washington lobbying, hedge funds. "Hello, my name is Steven Eisman," began an email to an Education Department official in May. "I wanted to bring to your attention many of the unsaid or unknown aspects of this industry." Mr. Eisman runs a hedge fund called FrontPoint Financial Services, whose hugely profitable 2007 bet that housing would collapse was chronicled in the book "The Big Short." In the past year, Mr. Eisman has sold short the stocks of for-profit education companies. He and some other investors betting on these stocks to fall have sought meetings with Education Department officials, and in some cases gotten a hearing. In emails and presentations, the investors have painted the for-profit industry in a highly critical light. The process of writing laws and regulations has long attracted intense lobbying from companies whose prospects are at stake. Much less common is for investors such as hedge funds to do so. But some have moved to beef up their presence in Washington, especially since the financial crisis led the government more deeply into the private sector. A group called Citizens for Responsibility and Ethics in Washington, or CREW, wrote to Education Secretary Arne Duncan last week that "certain hedge fund managers had direct and sustained input into the regulatory process." In what the group called "more troubling," it said Education Department officials sought and received investors' input despite knowing their financial motives, and asked for an investigation. Two Republican senators, Tom Coburn of Oklahoma and Richard Burr of North Carolina, earlier asked the Education Department's inspector general to look into the propriety of the contacts with investors. "It is important to ensure that the integrity of the rule-making process has not been compromised," said a spokesman for Sen. Coburn. The IG's office is looking into the issue.
Emerging Nations Tackle Foods Costs. Fast-growing emerging nations are taking increasingly aggressive actions to beat back rising food prices as they grow more worried of threats to stability if prices don't start to retreat. Developing-market governments have unveiled a laundry list of measures—including price caps, export bans and rules to counter commodity speculation—to keep food costs from disrupting their economies as price spikes that some had hoped were temporary have stretched into the new year. Some economists worry that any further supply shocks could push prices even higher, triggering a food-price crisis like the one the world witnessed in 2008, when higher food costs led to violent unrest across the developing world.
Execution Drug Halt Raises Ire of Doctors. Doctors and pharmacists are criticizing a U.S. drug company's decision to permanently halt production of an anesthetic used in carrying out the death penalty, saying the drug was still needed for some surgical procedures. Hospira Inc., the sole U.S. maker of the anesthetic thiopental sodium, decided Friday not to resume producing the drug after months of opposition by activists and others over its use in lethal injections, the only or primary execution method in the 35 states that carry out the death penalty.
How Public Unions Took Taxpayers Hostage. The first to seize on the political potential of government workers was New York's Mayor Robert F. Wagner. The Kennedy White House took notice of his success.
CNBC:
Why Rising Food Prices Could Hurt Stocks. Rising food prices are probably a threat to your portfolio. Because they mean slower world growth at a time when the recovery is still patchy.
NY Post:
'Capitalist' Contradictions by Charles Gasparino. GE(GE) Hire No Course-Change for Obama. Sure, Immelt brings a lot of business experience to the post -- he's spent many years in the trenches of one of the world's biggest companies, and his last 10 as its CEO. Problem is, this isn't necessarily the kind of experience needed to deal with "jobs and competitiveness." Rather, Immelt's selection underscores the inherent flaw in Obamanomics: It favors the crony capitalists at the banks and large corporations that feed off government bailouts and contracts at the expense of entrepreneurs and small businesses, who in the past have pulled the nation's economy out of recession and created jobs. GE has seen some of its darkest days under Immelt. Since he replaced the iconic Jack Welch as head of the manufacturing/financial services conglomerate, the stock has fallen significantly. In the '08-'09 financial crisis, Immelt's GE was nearly decimated as its financial-services unit threatened to bring down the company. The once-mighty firm had to fall in line with the rest of the financial industry and accept a federal bailout. When Obama took over, with his lofty "social justice" and environmentalist goals, a beaten and bruised GE became one its best corporate partners -- advocating policies that would make the US economy more like Europe's and supporting the talk of "green jobs" miracles and the wisdom of taxing energy use. It paid off for GE, in the form of huge government contracts and other subsidies -- which, coupled with the bailout guarantees, helped the company survive and then thrive. Back when GE was majority owner of CNBC (and I worked for the network), Immelt showed his allegiance by calling a meeting of top network talent to discuss whether coverage of the administration's left-leaning economic policies was too negative. People who were present told me that Immelt didn't wind up overtly pressing for any change in coverage; he didn't have to, because his message was clear. The president's message is clear, too. Crony capitalists like Immelt -- or William Daley, the new White House chief-of-staff and a former top executive at JP Morgan (another bailout winner) -- will be calling the shots. The White House won't say what rules it has to prevent Immelt from using his appointment to get even more business for GE, but Immelt's spokesman says unabashedly that the CEO has no plans to back away from GE's government-serving business model and will continue to lobby the administration he's now a part of for business -- "as long as he's transparent," adding that he "doesn't intend" to use his role on the council for business purposes. All of which might be good for Immelt's GE -- but it's hardly the cure for the joblessness and other economic problems facing the country.
Business Insider:
California Entrepreneur Is Developing Marijuana Soda. Clay Butler is developing a line of "soda pot" called Canna Cola, a medical marijuana soft drink. In addition to that flavor, the California-based commercial artist plans on releasing others, including "Dr. Pepper-like Doc Weed, lemon-lime Sour Diesel, grape-flavored Grape Ape and orange-flavored Orange Kush," according to the Santa Cruz Sentinel.
Uncertainty Over Economy Clouds Obama Speech. A year ago, the economy looked as if it were speeding down the runway, only to stall out in the spring. Now tentative signs of a pickup are emerging across the country again. Factory production, retail sales and existing-home sales are rising, while unemployment claims are trending down. Companies like General Motors and Macy’s have recently announced hiring plans, and bank lending to businesses is starting to expand. Investor sentiment is strengthening, as major stock market indexes climb to their highest levels since mid-2008. This time, though, economists and business leaders are more measured in their optimism about the recovery. Growth is real, they say, though they remain unconvinced it will accelerate all that much.
Forbes:
In 2011 All Eyes Are On The Tablet. Apple's(AAPL) bust-out sales quarter for tablets and smartphones sheds light on consumers' demand for these products, suggesting some parts of the tech sector will have a good year.
China's End-of-Cycle Lending Binge. Today, Premier Wen cannot even control the state’s own banks. And, as a result of this and other factors, the economy is zooming along, fueled by cheap money from these financial institutions. At the moment, fixed investment, almost all of it funded by banks, is about 70% of GDP. No country has a higher rate. And growth is coming at a steep price, as more and more money produces less and less output, a trend evident in recent years. Nonetheless, state banks are continuing to pour money into increasingly dodgy projects. That means they are accumulating questionable loans — the real nonperforming loan ratio is undoubtedly many multiples of the official 1.14%. And all that has to happen for the economy to stumble is for the Chinese people to lose confidence in the sustainability of growth. That will happen when they start noticing the end-of-economic-cycle maneuvers the banks are now employing—and when they realize that Premier Wen will not or cannot stop the gusher of cash from state financial institutions.
Wired:
Was China's Stealth Tech Made in America? On March 27, 1999, during the height of NATO’s air war on Serbia, a very smart and very lucky Serbian air-defense commander achieved the seemingly impossible. Firing three 1960s-vintage SA-3 missiles, Col. Zoltan Dani managed to shoot down an attacking U.S. Air Force F-117 stealth fighter-bomber piloted by Lt. Col. Dale Zelko. NATO commanders had been sending the alliance’s planes, including the stealth attackers, into Serbia along predictable routes, allowing Dani to carefully plan his missile ambush. A fast-acting team of Air Force A-10 attack planes and helicopters retrieved Zelko intact, but not so the wreckage of the colonel’s top-secret jet, one of the technological stars of the 1991 Gulf War. The destroyed F-117’s left wing, canopy and ejection seat — plus Zelko’s helmet — wound up in a Belgrade aviation museum, but most of the rest of the 15-ton jet was gathered up by farmers living around the crash site. Twelve years later, some of those components may have finally surfaced — in the design of China’s new J-20 stealth fighter.
Politico:
GOP Dumps Pelosi's Composting Program. Republicans have begun cutting Democrat Nancy Pelosi’s "Green the Capitol" program and they’re starting with the garbage. House Administration Chairman Dan Lungren (R-Calif.) is moving to suspend the House composting program after a review showed the program was actually increasing the House’s overall energy consumption, the House Administration Committee announced Monday.
Tim Pawlenty: More Spending 'Atrocious'. Former Minnesota Gov. Tim Pawlenty says President Barack Obama’s expected push for new government spending is an “atrocious idea.” “The last thing he should be calling for is more government spending at a time where the Obama administration is driving the country toward the cliff of insolvency,” Pawlenty, who’s eyeing a White House bid to unseat Obama, told reporters after a book signing here. “It’s reckless. It’s irresponsible. It hasn’t worked. It’s not going to work. And he needs to be stopped in some regard.” In his second State of the Union address on Tuesday, Obama is expected to argue for more spending on infrastructure, research and education. Meanwhile, a showdown over increased federal expenditures could come as soon as March, when Congress will have to increase the national debt limit or risk a government shutdown. Since leaving office earlier this month, Pawlenty has repeatedly urged Republicans to refuse any increase in the debt ceiling. “The president is falsely trying to set up this choice between default and raising the debt ceiling,” Pawlenty said. “By prioritizing the paying of bills within the existing cash flow, you remove the question of default and have the debate be on discretionary spending and reform that needs to take place. “It’s inevitable,” he added. “It’s going to happen anyhow. I’m saying fast forward it to right now.”
Paul Ryan Will Call for End to 'Spending Binge'. Budget Committee Chairman Paul Ryan, in his State of the Union rebuttal Tuesday night, will call for an end to “Washington’s spending binge” that Republicans contend has hampered job creation and piled debt on future generations. In rejecting Obama’s planned call for “targeted investments”—which Republicans contend is a metaphor for more stimulus spending—Ryan reportedly will respond that the “spending binge” of the past two years failed to stem historic unemployment and the nation’s largest deficits. Instead, he will emphasize the need to cut federal spending in order to boost job creation.
Reuters:
TI's(TXN) Margins Disappoint, Envisions Spending Hike. Texas Instruments Inc disappointed Wall Street on margins and said it will sharply increase 2011 spending despite an expected decline in revenue this quarter, sending its shares down 3 percent. While TI said it is optimistic about growth prospects, analysts questioned whether its 2011 revenue growth would match an 8 percent increase in its research and development spending budget compared with 2010.
VMware(VMW) Warns Margins Static for 2011. VMware Inc. warned operating margins were not expected to increase this year as it spends money on new hires and attacking international markets, even though it forecast higher-than-expected sales of its virtualization software. Shares of the company, which vies with Microsoft Corp and Oracle Corp in the fast-growing field of computer virtualization, fell 4.4 percent after-hours.
AmEx(AXP) Revenue Rises, But Regulatory Issues Linger. American Express Co said fourth-quarter revenue grew 13 percent from a year earlier, as consumer spending increased. But an uncertain regulatory outlook threatened to overshadow the company's ambitions for future growth. Shares fell about 1.4 percent in after-hours trading on Monday, after the credit card lender and payment network reported its full fourth-quarter results.
Security Apps Boost Apple(AAPL) as BlackBerry Alternative. A slew of small security software developers are helping Apple's iPhone gain a foothold within corporations that were once the exclusive domain of Research In Motion's(RIMM) BlackBerry. The shift reflects efforts by some companies to accommodate the preference of many employees for Apple's iconic smartphone, a trend that has led software makers to develop programs to deliver secure email and other data over the iPhone.
Bond Insurers Face New Potential Downgrade Threat. Standard & Poor's could downgrade bond insurers by a full category or more if new ratings standards for the sector are implemented and the companies do not raise more capital, the agency said on Monday. Bond insurers' shares fell sharply, as the prospect of further deep downgrades weighed on an industry already facing challenges writing new business.
Obama Pressed to Seek Votes on Bush-Era Trade Deals. President Barack Obama faced bipartisan pressure on Monday to send Congress long-delayed trade deals with South Korea, Colombia and Panama and rally support for them. "We need to get back on track by opening markets to U.S. products," Senator Rob Portman told Reuters ahead of Obama's annual State of the Union speech to Congress on Tuesday. "I think it's a critical part of the overall package to deal with this stubbornly high unemployment."
Financial Times:
Moscow Braces for Fresh Terror Campaign. Moscow is bracing itself for a renewed terror campaign by Islamist militants after an explosion ripped through the international arrivals hall of the city’s Domodedovo airport, killing 35 people and injuring up to 170. Police put the city’s transport hubs on high alert after the second major terrorist attack to strike the capital in a year. There were no immediate claims of responsibility on Monday. But prosecutors said they were investigating a terrorist attack “most likely” carried out by a suicide bomber, while analysts said the attack bore the hallmarks of a campaign by militants battling to create an Islamist state in the Russia’s volatile North Caucasus.
SEC's $500M Office Expansion Plan Probed. The US Securities and Exchange Commission’s inspector general has launched an investigation into the agency’s estimated $500m in new office leases in Washington to determine if the expenses are justified, a person familiar with the matter says.
Telegraph:
Spain Tempts Fate With Minimalist Bank Rescue. Spain has set in motion a partial nationalisation of its crippled savings banks, or cajas, but stopped short of the giant rescue deemed necessary by some experts to contain the country’s festering crisis. Finance minister Elena Salgado said capital injections into the cajas would “in no way exceed €20bn [£17bn]”, with a large part coming from the private sector. Spanish banks will have to boost their core Tier 1 capital ratio to 8pc, even stricter than the Basel III rules. “This is unlikely to be a game-changer, and could potentially unwind the relief rally we have seen in the markets,” said Silvio Peruzzo, RBS’s Europe economist. “We view €50bn as the minimum recapitalisation for the Spanish banking system that would restore investors’ confidence,” said the bank. RBS said Spain remains caught in a vice of tightening fiscal policy and a deepening property slump that may culminate in a 40pc fall in house prices, eroding the solvency of the cajas. The Madrid consultants RR de Acuna estimate the overhang of unsold homes at 1.2m. Mr Peruzzo called on EU leaders to take much bolder action to overcome the crisis, demonstrating that they really mean to “save Spain” by beefing up the rescue machinery. EU ministers played for time at a key meeting last week, giving an impression of complacency.
The China Banking Regulatory Commission is about to start "window guidance" on banks, requiring them to file daily reports of credit issuance, citing two agency officials. China will raise the minimum reserve requirement ratio for banks whose lending grows more quickly than the regulator had expected, and may order banks to temporarily halt new-loan approvals.
China Business News:
Shanghai has sent a plan for a property tax in the city to China's Ministry of Finance for approval that would implement a 4% levy on the value of homes. The city will impose the tax on newly purchased homes of more than 60 square meters per person.
Most Chinese banks reduced the amount they plan to lend in January by at least 10% for their branches compared with a year ago, citing bank officials.
Financial News:
China needs two to three years to fix its property market, citing central bank adviser Xia Bin.
Evening Recommendations
None of note
Night Trading
Asian equity indices are -.50% to +1.25% on average.
Asia Ex-Japan Investment Grade CDS Index 106.0 -.5 basis point.
Asia Pacific Sovereign CDS Index 118.50 -1.0 basis point.
S&P/CS 20 City MoM% SA for November is estimated to fall -.8% versus a -.99% decline in October.
10:00 am EST
Consumer Confidence for January is estimated to rise to 54.0 versus a reading of 52.5 in December.
The House Price Index for November is estimated unch. versus a +.7% gain in October.
Upcoming Splits
None of note
Other Potential Market Movers
The $35 Billion 2-Year Treasury Notes Auction, weekly retail sales reports, Richmond Fed Index, weekly ABC consumer confidence reading and the (JNJ) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 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.
