Gunfire Erupts in Cairo as Mubarak Allies Battle Protesters. Gunfire erupted in Cairo’s Tahrir Square early this morning after clashes between supporters of Egyptian President Hosni Mubarak and demonstrators demanding an immediate end to his autocratic 30-year reign. Four people were killed this morning, Al Arabiya television reported. The Al Jazeera network showed footage of bodies being pulled on the street. Mubarak loyalists rode horses and camels yesterday into Tahrir Square, the epicenter of anti-government protests since Jan. 25, swinging whips and clubs. The two sides hurled rocks, bottles and concrete chunks, sometimes from rooftops, and some pro-government marchers carried machetes. Egyptian soldiers didn’t intervene, except to use water cannon to extinguish fires, and there were no uniformed police present. More than 600 people were injured and at least three killed in the clashes, according to state television, as the battle lines shifted with government supporters challenging the demonstrators who reject Mubarak’s plan to remain in power until September elections.
Portugal Crumbles as Century-Old Rent Controls Choke Investment. Century-old controls on rents and evictions are stifling investment in Portuguese real estate and leaving the country with crumbling city centers as rental income fails to keep pace with maintenance costs, according to landlords and property industry groups. The government has pledged to introduce measures in March to streamline rules on rental properties as it seeks to jumpstart an economy that’s had one of Europe’s weakest growth rates over the last decade.
BP(BP) Mediator Feinberg Can't Call Himself Independent, Judge Says. A federal judge said Kenneth Feinberg, the lawyer paying victims of BP Plc’s Gulf of Mexico oil spill, can’t identify himself as an independent administrator of a $20 billion settlement fund. U.S. District Judge Carl Barbier in New Orleans concluded yesterday that Feinberg must fully disclose his ties to BP when communicating with potential claimants. Lawyers for oil-spill victims had questioned Feinberg’s handling of the $20 billion trust fund, known as the Gulf Coast Claims Facility, or GCCF.
ICE(ICE) May Alter Rules to Curb Cotton Speculation, FT Reports. ICE Futures U.S. may change a rule that will help curb speculation in cotton-futures trading, the Financial Times said. Traders seeking to maintain positions to sell or take physical delivery in excess of the spot-month position limit of 30,000 bales would have to show it was “economically appropriate,” ICE said yesterday in a statement. The number of open contracts for March delivery was about 8.6 million bales with fewer than 200,000 bales certified for delivery, the newspaper said, citing Jordan Lea, the head of Eastern Trading, a cotton merchant, and the president of the American Cotton Shippers Association. Speculators may squeeze merchants, spurring a “massive spike where the market breaks down, where you’re literally unable to liquidate your position,” Lea was cited as saying. Cotton prices have more than doubled in the past year.
Copper Gains to Record, Heading for $10,000 on Demand Recovery. Copper advanced to records in London and New York as manufacturing improved from China to the U.S., boosting the demand outlook for the metal used in construction and electrical applications. Three-month delivery copper added as much as 0.5 percent to $9,993 a metric ton on the London Metal Exchange and traded at $9,970.75 by 11:19 a.m. Tokyo time. Copper for March delivery rose as much as 0.8 percent to $4.58 a pound on the Comex in New York before trading at $4.5535.
Cyclone Yasi Hits Australian Sugar Crops, Price Advances to 30-Year High. Sugar cane plantations in Australia, the world’s third-largest exporter, likely suffered significant damage from Tropical Cyclone Yasi, helping send futures prices to the highest in 30 years. “It has actually gone right through the center of key cane-growing areas,” Steve Greenwood, chief executive officer of Brisbane-based producers group Canegrowers said by phone today. “It’s going to be as bad as we thought, unfortunately.” Yasi, packing winds stronger than those from Hurricane Katrina, crossed overnight into the north Queensland region, which accounts for about a third of Australia’s sugarcane and 85 percent of the nation’s banana output. Canegrowers yesterday estimated losses including damage to crops and farms of at least A$500 million ($505 million). “The region is an important sugar cane producing region and we suspect significant cane damage has occurred,” Luke Mathews, commodity strategist at Commonwealth Bank of Australia, said in a note today.
Republican Governors Seize Court Ruling to Undo Health Law. Republican governors from Florida to Arizona say a recent court decision is grounds to stop implementing President Barack Obama’s health-care law. Florida Governor Rick Scott, a former hospital industry executive, said he’ll wait for further rulings before preparing to carry out the law aimed at creating near-universal health care. The state won’t accept a $1 million grant intended to help it get ready, Florida Insurance Commissioner Kevin McCarty said in a letter to federal officials yesterday. “We are not going to spend a lot of time and money with regard to trying to get ready to implement that until we know exactly what is going to happen,” Scott told reporters after a cabinet meeting in Tallahassee yesterday.
Investors Flee U.S. Municipal-Bond Mutual Funds for 12th Consecutive Week. Investors pulled money from U.S. municipal-bond mutual funds for the 12th consecutive week and added cash to domestic stock funds for the third straight time, the longest streak of deposits since April. Muni-bond funds had net redemptions of $2.7 billion in the week ended Jan. 26, the Investment Company Institute said today in an e-mailed statement from Washington. The withdrawals, triggered by concern that financially strapped cities and states may default, total $33.5 billion over the 12-week stretch. U.S. municipal bonds lost 5.3 percent in the three months ended Jan. 31, according to the Bank of America Merrill Lynch Municipal Master Index.
Wall Street Journal:
Mubarak's Supporters Strike Back. U.S. Pushes for Speedier Regime Change as Rival Camps Clash in Egypt's Streets. Violence erupted in Egypt's capital when supporters of President Hosni Mubarak clashed for the first time with protesters, as the regime dug in against demands, from within the country and from Washington, that a transfer of power begin immediately. The clashes began hours after Mr. Mubarak announced in a speech late Tuesday that he wouldn't run in elections slated for later this year. They gained intensity during the day in central Cairo's Tahrir Square, with the two sides rushing at each other, wielding clubs and throwing Molotov cocktails. Some Mubarak supporters charged protesters on horseback and camelback, a tactic the regime has employed against past demonstrations. Clutches of soldiers looked on, doing little to intervene.
White House Charts a New Plan. Reacting to Violence in Cairo, U.S. Makes First Calls for a Speedily Formed Transitional Government Without Mubarak. The Obama administration, stung by an outbreak of violence in Cairo Wednesday, is now pushing for a speedy transfer of power to a transitional government that would sideline Egyptian President Hosni Mubarak or remove him from power, people familiar with the matter say. An interim government, made up of opposition parties and parts of the current regime, could buy time to rewrite the Egyptian constitution, let opposition parties organize and prepare for elections this year, the people, who are close to the White House, said. Such a move will put Washington on a collision course with Mr. Mubarak, who appears intent on overseeing any transition, and those in the Egyptian opposition who are pushing for much speedier elections.
ElBaradei's Role Cast in Doubt. In the weeks leading up to the extraordinary uprising, a spectrum of opposition figures banded together to plan an alternative vision to the regime of President Hosni Mubarak. Even before last month's popular ouster of Tunisia's president electrified protesters in Egypt and across the Middle East, these people held dozens of meetings lasting more than 100 hours. They created a 100-member "shadow legislature" of union leaders, judges and representatives from youth parties and the country's banned but influential Muslim Brotherhood, say people in attendance. While the speed and scope of the past week's protests in Egypt largely took them by surprise, the opposition figures quickly assembled a game plan.
Hedge Funds Gird to Fight Proposals On Disclosure. Hedge funds are gearing up to take on proposed rules that would force them to turn over more data about their trading positions to the U.S. government. Regulators will be required to keep the information they gather confidential, but some hedge funds are invoking a WikiLeaks scenario, saying they are concerned that too many hands will be on their proprietary data and the government won't be able to protect it.
States Widen Currency-Trade Probes. State prosecutors are getting help from an organized group of whistle-blowers in a widening investigation into whether banks overcharged public pension funds by tens of millions of dollars for foreign-exchange transactions. The whistle-blowers, who are using Delaware shell companies to remain anonymous, are helping with investigations into the issue by attorneys general in California and Virginia, according to court documents and people familiar with the matter.
Key Moment Looms for Euro. As European Leaders Prepare to Release Details of New Strategy, Much Rides on Credibility of Plan. European leaders in Brussels on Friday are expected to confirm the broad outline of a strategy for solving the debt crisis, in a move that is seen as a decisive moment for the euro zone.
CNBC:
TARP Makes Future Bailouts More Likely: Top Official. The financial rescue fund known as TARP has actually increased the likelihood of more bank bailouts in the future, Neil Barofsky, the program’s special inspector general, told CNBC Wednesday. "As long as the market perceives that the government is going to be a backstop...(it will) encourage more and more risk-taking and put us right back where we were in late 2008," said Barofsky.
Did SEC Staffer Surf Porn While Investors Got Burned?A former regional supervisor at the Securities and Exchange Commission missed an alleged $550 million Ponzi scheme that was unfolding at the same time he was caught accessing pornography on his office computer, according to a report obtained by CNBC.
MarketWatch:
China Property Bubble to Pop This Year, Says Analyst. The end may be neigh for China’s inflated property market, according to one analyst who says the nation’s banking system is unlikely to pump out enough credit this year to sustain further gains in real-estate prices. “We think that the bubble will likely burst some time in the next year,” says Forensic Asia Ltd.’s managing director Gillem Tulloch, in Hong Kong. One reason, he says, is China’s state-directed banks will be under pressure to reel back lending in a meaningful way, leaving the economy short of the more than 11 trillion yuan ($1.7 trillion) in credit he says is needed to keep prices rising at rates that make owning more attractive than renting.
Yasi Damage Seen Less Than Feared. Cyclone Yasi slammed into Australia’s North Queensland coast in the dark hours of Thursday morning, battering the state’s coastal communities and its vast agricultural and mining interests, but there were no reports of fatalities or serious injuries, and the region appeared to escape maximum damage.
NY Post:
Health Law Starts to Tumble Down. If the administration and the Senate Democrats had any sense, they'd take Judge Vinson's ruling as a gift, not a setback. Because, whether they know it or not, the judge just handed them an opportunity to get health care right.
How The Crisis in North Africa Could Make the Global Food Situation Even Worse. Surging wheat prices are certainly one (though not the only) cause of rioting upheaval in Tunisia, Egypt, and elsewhere. And guess what. If things get worse, that could feed back into the food problem. That's because this region is a major source of diammonium phosphate, which is a major ingredient for growing... wheat.
What Egyptians Want: Not Western-Style Democracy. Precious few have bothered to ask exactly what it is that ordinary Egyptians are after. They should, because—beyond the general dissatisfaction with the Mubarak regime now visible on the Egyptian “street”—the values and beliefs of the protestors are likely to have a profound influence on the nature of the political order that will eventually emerge there. On that score, it turns out, there’s ample reason for pessimism. As Caroline Glick, one of Israel’s most astute observers of regional affairs, pointed out this week in the Jerusalem Post: “According to a Pew opinion survey of Egyptians from June 2010, 59 percent said they back Islamists. Only 27% said they back modernizers. Half of Egyptians support Hamas. Thirty percent support Hezbollah and 20% support al Qaida. Moreover, 95% of them would welcome Islamic influence over their politics…Eighty two percent of Egyptians support executing adulterers by stoning, 77% support whipping and cutting the hands off thieves. 84% support executing any Muslim who changes his religion.” Egyptian values, in other words, are far from liberal—even if some of the protesters currently out in the streets might be. This, of course, runs counter to the idea that has taken hold in many quarters: that the end of the Mubarak era will inexorably lead to democracy in the heart of the Arab world. But numbers don’t lie; Egyptian society as a whole is both religious and deeply conservative.
marketfolly:
Whitney Tilson Reduces Short Exposure, Refocuses on Buying Cheap Stocks. Whitney Tilson and Glenn Tongue's hedge fund T2 Partners have had some rough sledding the past few months, mainly due to their large short exposure. Over the last five months, they are down 4.3% net while the S&P 500 has rallied 23.5%. As such, they've re-examined their portfolio construction and have concluded to reduce short exposure and get back to basics: buying cheap stocks.
LA Times:
CKE Restaurants is Exploring a Move to Texas from California. The parent of the Carl's Jr. and Hardee's fast-foot chains is in 'very early' talks about moving its headquarters from Carpinteria in Santa Barbara County to the Lone Star State, a company spokeswoman says.
Middle East Situation 'Fragile' - World Bank Chief. The situation in the Middle East is "fragile" with countries like Egypt and Tunisia caught in a dilemma of "partial modernization" in which the political system does not allow the masses to benefit from economic advances, the head of the World Bank said on Wednesday. Interviewed by phone from Berlin as riots raged across Egypt, World Bank President Robert Zoellick said the lender was ready to move quickly to support nations in the region as they press forward with economic and political reforms. "We are in a very fragile situation, not only for Egypt but for a number of countries across the Middle East," he told Reuters.
Visa(V) Profit Rises as it Preps for New Environment. Visa Inc's quarterly profit rose 16 percent, slightly beating expectations, as consumer spending ramped up and the company processed more transactions abroad. But the days of outsize returns on low expenses appear to be ending for Visa, the world's largest credit and debit card processing network. It failed to beat expectations by as much as investors have come to expect, and it has yet to fully assuage investor concerns about how it will cope with new U.S. regulations that may reduce future revenue.Shares fell about 1 percent in after-hours trading, after closing 2 percent higher at $72.09.
Fed's Duke Says Expects Moderate Growth. A top Federal Reserve official suggested on Wednesday she does not think the U.S. central bank will have to extend its $600 billion bond-buying program beyond mid-year, but economic weakness could force the Fed's hand. "If the economy does, as I expect it to, and continues to grow at a moderate pace, then I think things will begin to come together," Fed Governor Elizabeth Duke said in response to a question about extending the bond-buying program after a speech at the University of North Carolina's Kenan-Flagler business school. "If we see further weakness in the economy, then we'll have to decide what seems to be the appropriate action to take at that time," Duke said.
Green Mountain(GMCR) Q1 Beats Street, Sees Strong Q2 Profit. Green Mountain Coffee Roasters Inc posted a better-than-expected quarterly profit, helped by strong holiday sales of its higher-margin coffee refills, and forecast a second-quarter profit above market estimates, sending its shares up 13 percent.
PIMCO's Gross Blasts U.S. Culture of Money and Greed. Billionaire bond maven Bill Gross in a February report says America needs new priorities and blasts a culture that worships money and greed. Gross, in remarks called "Devil's Bargain", blames money managers for failing to allocate capital wisely. He criticizes a culture that lives off ill-advised financial innovation such as securitization. In the comments on the website of Pacific Investment Management Co. Gross even points a finger at himself and says he is a member of this rogue's gallery."I know one thing for sure. This is not God's work -- it has the unmistakable odor of Mammon," says Gross, a founder and co-chief investment officer at PIMCO in Newport Beach, California, where he helps oversee about $1.1 trillion in assets.
SEC at Odds with CFTC on Swap Trade Rules. The Securities and Exchange Commission on Wednesday proposed rules for trading swaps that differ from those being considered by its fellow US market regulator, the Commodity Futures Trading Commission. The rules for “swap execution facilities”, or SEFs, are hugely important in determining the way derivatives markets function in the future and whether entities – such as Wall Street derivatives dealers – capture trading activity.
Evening Recommendations ThinkEquity:
Rated (FCS) Buy, target $21.
Rated (CEVA) Buy, target $30.
Rated (ONNN) Buy, target $13.
Rated (ALTR) Buy, target $45.
Night Trading
Asian equity indices are -.25% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 108.50 +1.5 basis points.
Asia Pacific Sovereign CDS Index 119.25 +.25 basis point.
Preliminary 4Q Non-farm Productivity is estimated to rise +2.0% versus a +2.3% gain in 3Q.
Preliminary 4Q Unit Labor Costs are estimated to rise +.2% versus a -.1% decline in 3Q.
Initial Jobless Claims for last week are estimated to fall to 420K versus 454K the prior week.
Continuing Claims are estimated to fall to 3950K versus 3991K prior.
10:00 am EST
The ISM Non-Manufacturing Composite for January is estimated at 57.1 versus a reading of 57.1 in December.
Factory Orders for December are estimated to fall -.5% versus a +.7% gain in November.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Bernanke speaking, Fed's Kocherlakota speaking, ICSC January Chain Store Sales, Raymond James Global Airline Conference, (EK) investor meeting and the (EMR) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are slightly higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 83.34 +.71%
European Financial Sector CDS Index 135.05 bps -1.89%
Western Europe Sovereign Debt CDS Index 161.0 bps -3.69%
Emerging Market CDS Index 211.91 -.27%
2-Year Swap Spread 22.0 unch.
TED Spread 16.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 283.0 -1 bp
China Import Iron Ore Spot $185.60/Metric Tonne unch.
Citi US Economic Surprise Index +42.0 +1.6 points
10-Year TIPS Spread 2.34% -2 bps
Overseas Futures:
Nikkei Futures: Indicating +28 open in Japan
DAX Futures: Indicating +6 open in Germany
Portfolio:
Slightly Higher: On gains in my Ag, Biotech and Tech 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 just slightly lower, despite recent equity gains, rising Mideast tensions, emerging markets inflation worries and rising long-term rates. On the positive side, Networking, Disk Drive, Computer, Ag, Oil Service, Oil Tanker and Alt Energy shares are especially strong, rising more than 1.0%. Tech shares have outperformed throughout the day. Copper is rising +.18%. The Italy sovereign cds is dropping -4.04% to 157.93 bps, the Portugal sovereign cds is falling -3.31% to 390.58 bps, the Hungary sovereign cds is falling -4.73% to 290.16 bps, the Belgium sovereign cds is declining -4.95% to 149.93 bps and the UK sovereign cds is falling -5.51% to 61.29 bps. Moreover, the US Muni CDS Index is falling -1.97% to 191.25 bps. On the negative side, Airline, Road&Rail, Retail, Homebuilding, Insurance and Coal shares are under pressure, falling more than 1.0%. (XLF) is underperforming. The Transports are also relatively weak. The UBS-Bloomberg Ag Spot Index is rising +1.71% to another new record high. Lumber is falling -3.17%. The 10-Year yield is rising +4 bps to 3.48%. The Egypt sovereign cds is rising +7.95% to 377.91 bps, the Saudi sovereign cds is gaining +4.26% to 118.81 bps and the Russia sovereign cds is climbing +1.35% to 144.12 bps. I still expect another push higher in the major averages over the coming days, barring any unexpected spike in energy prices. I expect US stocks to trade mixed-to-higher into the close from current levels on earnings optimism, diminishing eurozone debt angst, stable energy prices and rising economic optimism.
Mubarak Moves to Regain Streets as Turmoil Hits Yemen. Supporters of Egypt’s Hosni Mubarak clashed in central Cairo with demonstrators demanding an end to the 30-year-reign of the president, who said yesterday he won’t step down until an election in September. The two sides hurled rocks at each other in Tahrir Square, the focus of protests since Jan. 25. Mubarak loyalists tried to storm independent newspaper Al-Shorouk’s offices, its editor said, while al-Jazeera reported live rounds were fired. Mohamed ElBaradei, an opposition leader and former United Nations diplomat, told the BBC the army should move in to end unrest incited by a “criminal regime” that “has to go immediately.” “The blood of those demanding democracy is being shed on the streets of Cairo at the hands of armed gangs,” the Cairo- based Arabic Network for Human Rights Information said in a statement on its website.
Muslim Brotherhood Gauges Role in Post-Mubarak Egypt. Egypt’s Muslim Brotherhood didn’t immediately join the spontaneous street demonstrations against President Hosni Mubarak. Now the Islamist group, the country’s largest opposition faction, is positioning itself to help shape the country’s political future. “They are the most organized and most popular, with a hierarchy in Egypt in terms of membership and leadership,” said Omar Ashour, an Egyptian lecturer on Arab politics at the University of Exeter in England. Founded in 1928, the same year Mubarak was born, the Muslim Brotherhood has influenced Islamist movements across the globe, including Hamas in the Palestinian territories, which the U.S., European Union and Israel consider a terrorist organization. “The Muslim Brotherhood is part of Egypt’s people, and we acquiesce in the verdict of the people, whatever it may be,” al-Erian said, adding that the group seeks “a democratic regime with the Islamic Sharia as a reference,” which he said already is enshrined in Egypt’s constitution. Sharia is based principally on laws from the Koran, sayings by the Prophet Mohammed and the opinions of Muslim scholars, and it’s the basis of some areas of Egyptian law though not the penal code. That stance may conflict with other vested interests. Egypt’s military leadership is committed to the foreign policy pursued by Mubarak, who has helped Israel blockade the Hamas- ruled Gaza Strip and sought to rally Arab support against Islamic extremism. The Brotherhood “would be calamitous for U.S. security,” Leslie Gelb, president emeritus of the Council of Foreign Relations in New York and a former U.S. assistant secretary of state, wrote Jan. 29 on the Daily Beast website. The group opposes the Egyptian-Israeli peace treaty of 1979 and “would endanger counterterrorism efforts in the region and worldwide,” he said. “That is a very big deal.” It “supports Hamas and other terrorist groups, makes friendly noises to Iranian dictators and torturers,” and would be “uncertain landlords of the critical Suez Canal,” he added. The canal carries about 8 percent of global maritime trade. The idea that the Brotherhood could hijack the anti-Mubarak rebellion has been dismissed by Mohamed ElBaradei, the former United Nations atomic agency chief and one of the opposition movement’s leaders. Mubarak stoked such fears to perpetuate U.S. support, ElBaradei told ABC News on Jan. 31. “This is what the regime sold to the U.S. and the West: It’s either us and repression, or al-Qaeda type extremist groups,” ElBaradei said of the Brotherhood, describing the group as religiously conservative and nonviolent. “You have to include them.”
Germany Rules Out Bond Buybacks by Bailout Fund, Official Says. Germany ruled out allowing the European Union bailout facility to fund bond buybacks from debt- strapped governments as euro-area officials struggle to narrow differences on a strategy to end the region’s financial crisis. A German government official briefing reporters before a Feb. 4 EU summit said the 440 billion-euro ($607 billion) European Financial Stability Facility lacks the legal authority to purchase the outstanding debt to ease finances of countries including Greece.
ADP Estimates Companies in U.S. Added 187,000 Jobs. Companies in the U.S. added more workers than forecast to payrolls in January, showing a pickup in the labor market, data from a private report showed today. Employment increased by 187,000 last month after a revised 247,000 gain in December that was less than initially estimated, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 140,000 gain last month. “I see a clear pattern of strengthening, acceleration here that is very encouraging,” Joel Prakken, chairman of Macroeconomic Advisers LLC, which produces the figures with ADP, said on a conference call. “The economy is starting to accelerate.”
Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate bonds fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declined 5 basis points to 400, approaching the lowest level since April, according to JPMorgan Chase & Co. prices at 8 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.25 basis points to 95.25, JPMorgan prices show. The cost of protecting bank bonds from default also fell, with the Markit iTraxx Financial Index of 25 banks and insurers down 3.5 at 150.5 and the subordinated index 6 lower at 263.5.
Spanish, Italian, Irish Bonds Advance, Narrowing Yield Spreads With Bunds. Spanish, Italian and Irish government bonds rose, reducing the additional yield investors demand to hold the securities instead of benchmark German bunds. Spanish 10-year bond yields fell 16 basis points to 5.05 percent as of 8:34 a.m. in London. That narrowed the difference in yield, or spread, with similar-maturity bunds to 184 basis points, the least since Nov. 2. Italian 10-year yields dropped 11 basis points to 4.53 percent, equivalent-maturity Irish bond yields fell 10 basis points to 8.93 percent and Belgian 10-year yields slid 11 basis points to 4.12 percent. The yield on 10-year Portuguese bonds fell seven basis points to 6.86 percent.
Ireland's Rating Downgraded One Level to A- By S&P and Faces Further Cuts. Ireland had its credit rating cut one level by Standard & Poor’s and a further downgrade is possible as the government tries to contain bank-rescue costs. The rating was lowered to A- from A, S&P said in a statement from London today. That’s four levels above non- investment grade and the same level as countries including Botswana and Portugal. Ireland remains on “creditwatch with negative implications,” S&P said.
'Toxic' Option-ARM Mortgages Rally as Rising Resets Loom: Credit Markets. Home loans that inflated the U.S. housing bubble by giving borrowers the choice of cutting interest payments in exchange for higher balances are fueling the fastest gains in the mortgage-bond market. Prices for senior bonds tied to option adjustable-rate mortgages, called “toxic” by a government commission, typically jumped 6 cents to 64 cents on the dollar in the past month, according to Barclays Capital. The next best-performing class of home-loan securities without government backing rose 4 cents. Option-ARM debt tumbled to as low as 33 cents in 2009. Rising values show Federal Reserve efforts to stimulate the economy by purchasing an additional $600 billion of Treasuries and holding interest rates near zero percent are driving investors into ever-riskier securities. Bond buyers are overcoming a “mental hurdle” even as the debt is poised to lead a second wave of rising payments for homeowners, according to TCW Group Inc.
Brazil Industrial Output Unexpectedly Shrank for Second Month in December. Brazil’s industrial output unexpectedly fell for a second straight month in December, prompting traders to trim bets on interest rate increases. Output in December fell 0.7 percent from November after a 0.2 percent decline in the previous month, the national statistics agency said today in Rio de Janeiro. Economists had forecast output to expand 0.9 percent, according to the median estimate of 29 analysts in a survey by Bloomberg.
Cotton Rises to Record as Adverse Weather Cuts World Supply. Cotton futures surged to a record on mounting supply concerns after flooding in Pakistan and Australia slashed crops. Cotton futures for March delivery contract rose 3.87 cents, or 2.2 percent, to $1.7609 a pound at 10:55 a.m. on ICE in New York. Earlier, prices climbed to a record $1.7612. The most-active contract advanced 4.5 percent in the previous two sessions. The commodity has more than doubled in the past year.
Sugar Jumps to 30-Year High on Australia, India Supply Concerns. Sugar futures surged to a 30-year high on mounting concern that global supplies will trail demand following crop damage in Australia and India, two of the world’s leading producers. Cyclone Yasi has crossed the coast of Australia’s Queensland state. The storm may cause crop losses of as much as $505 million, a grower group said. Output from India may be less than predicted after heavy rains, a producer organization said. Prices have more than doubled since the end of June. “The cyclone is the story,” said Jason Cole, a broker at Starsupply Renewables SA in Geneva. An extended rally will depend on the severity of the damage, he said. Raw sugar for March delivery climbed 1.23 cents, or 3.6 percent, to 35.19 cents at 11:38 a.m. on ICE Futures U.S. in New York. Earlier, the price reached 36.08 cents, the highest for a most-active contract since November 1980.
Brazil to Help U.S. Counter China, Official Says. will seek closer commercial ties with the U.S. in a bid to counteract the threat posed by cheap imports from Brazilian President Dilma RousseffChina, a Brazilian official said.
Wall Street Journal:
Mubarak Supporters Battle Protesters. The political unrest gripping Cairo turned ugly Wednesday, as groups of supporters of President Hosni Mubarak charged antigovernment protesters, underscoring the difficulty of a smooth democratic transition to a post-Mubarak Egypt. Bloody clashes in the city's main square escalated through the day, after Mr. Mubarak said Tuesday night he would step down after elections this year—angering protesters who demanded his immediate resignation after 29 years in power.
EU Sees Massive Aid to Huawei, ZTE. The European Commission believes Huawei Technologies Co. and ZTE Corp., China's largest telecommunications equipment makers, likely benefit from significant Chinese government support, including "massive" credit lines from Chinese state-owned banks, according to a confidential commission document obtained by Dow Jones Newswires. The findings are likely to fuel further debate regarding the treatment of the large subsidies that—according to western governments and companies—Chinese businesses receive from the Chinese government.
Bloomberg Businessweek:
VIX Sinking to Three-Year Low is Fastest-Growing Bet.Traders are snapping up bets that the U.S. options market gauge known as the VIX will sink to a three- year low after concern that equities will retreat fades. The number of outstanding May 15 put options on the Chicago Board Options Exchange Volatility Index jumped to 54,527 from 8,318 on Jan. 27 for the biggest one-day increase among all contracts during the past week, according to data compiled by Trade Alert LLC.
MarketWatch:
News Corp.(NWSA) Launches The Daily on iPad. News Corp. on Wednesday launched its long-awaited iPad-based daily newspaper, The Daily, in the latest attempt to adapt newspapers to an increasingly mobile digital audience.
Business Insider:
Gary Shilling on the Chinese Hard Landing That's Going to Prick the Global Commodity Bubble. China's economy is, "in for a hard landing...this year or next year," according to Gary Shilling, who spoke at Bloomberg's China Investment Strategies conference. He doubts the ability of the Chinese government to control the economy, and described its monetary policy as "very crude."
Playing to Hedge Funds, a Trophy Rises in Midtown. When the developer Harry Macklowe contemplated building a boutique office tower with unparalleled amenities at 510 Madison Avenue in the late 2000s, he expected it would be filled with hedge funds and other financial sector tenants who would pay rents well above $100 per square foot. But the economy slumped in late 2008, and Mr. Macklowe found himself fighting to maintain ownership of 510 Madison, at 53rd Street, where just one company had signed a lease. He lost that ownership battle to Boston Properties last September. Now, a series of leases signed at 510 Madison late last year for well north of $100 a square foot signifies a turnaround for the building — and may presage a recovery of Manhattan’s overall high-end office market, brokers said.
Financial Disarray at S.E.C. Hurts Bid for Bigger Budget. If a company’s financial reporting were so bad that its auditor had pointed out significant weaknesses in its accounting for seven years running, the Securities and Exchange Commission would most likely be all over it. But what if the company were the S.E.C. itself?
TSA Debuts Less-Revealing Software for Airport Scanners. New software designed to make airport security scanners less intrusive debuted at the Las Vegas airport Tuesday, a response to last year's uproar from passengers who thought the blurry but revealing images were an invasion of privacy.
Fox Business:
Many Hedge Funds Have Weak Start In January, Lagging Stocks. Many hedge funds lagged stock market indexes and took the wrong side of currency and interest-rate bets in January, in a lackluster start to the year for the industry. The HFRX Global Hedge Fund Index, tracking about 250 funds that report on a daily basis, gained 0.56% in January, far less than the S&P 500's 2.4%.
Real Clear Markets:
White House Delays Fannie & Freddie Reform. Fannie and Freddie are still bleeding losses, costing taxpayers billions more each month. Yet the White House continues to delay reforms, in defiance of a congressional order.
Barack Obama Faces Tough Questions on Egypt. Egyptian President Hosni Mubarak’s apparent desire to hang on to power until September is forcing President Barack Obama into a difficult position.
BMO Chief Says Seeing Signs of U.S. Business Pickup. The head of Bank of Montreal, which recently moved to expand its already substantial U.S. presence, says he sees signs of increased acquisition and trade activity among the bank's U.S. clients, suggesting an improving business climate.
Le Temps:
Iraq will increase its oil-production capacity to 11 million barrels a day within "six or seven years," the country's Deputy Prime Minister Hussain al-Shahristani said. That would make Iraq a bigger producer than Saudi Arabia, al-Shahristani said.
Wolfgang Wiegard, a member of Chancellor Angela Merkel's council of economic advisers, said he doubts that Greece can avoid a debt restructuring. Wiegard said he can "imagine mechanisms" that limit restructuring costs to banks, and not German tax payers. European Union governments must sharpen their plans to include private creditors in debt restructurings, he said.
Die Zeit:
European Union officials are considering measures that would punish countries that run excessive trade surpluses or whose competitiveness is too high, citing a document. The proposed measures would require states to keep their current account balances within a "corridor" of plus or minus four percent of GDP. A similar boundary would apply for the yearly change in unit labor costs, a measure of price competitiveness.
