Egyptian Credit Risk Falling to Lowest Since Protests. Egypt’s credit risk is falling to the lowest level since anti-government protests began two weeks ago and international borrowing costs are dropping as the nation’s biggest political crisis in three decades eases. The cost of insuring Egyptian sovereign debt retreated 32 basis points, or 0.32 percentage point, yesterday to 334, the lowest level since Jan. 25, according to CMA prices in London. The yield on Egypt’s 5.75 percent bond due in April 2020 slumped 39 basis points to 6.21 percent after climbing to a record 7.2 percent on Jan. 31, data compiled by Bloomberg show.
Commodities to Beat Emerging Market Stocks in 2011, SocGen Says. Commodities will beat stocks in China, Brazil and other emerging economies this year as inflationary pressure curbs equity gains, said Societe Generale. Growth of raw-material consumption in emerging economies led by China will be sustained even as prices advance, said commodity analyst Jeremy Friesen, who was a strategist at Morgan Stanley in New York before joining the Paris-based bank. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 14 percent last year as the Dow Jones- UBS Commodity Total Return index climbed 17 percent. “Prices of commodities will have to go up to rationalize the investments to produce commodities as well as consumption,” Friesen said yesterday in a phone interview from Hong Kong. “Corporates are going to have to deal with how to be profitable and yet still facing higher costs.”
Oil Trades Near One-Week Low on Forecast U.S. Stockpiles Gained. Oil traded near the lowest in more than a week as tensions in Egypt eased and rising stockpiles in the U.S. signaled fuel demand may be faltering in the world’s biggest crude consumer. Investors should consider selling bullish oil positions as the Egyptian crisis subsides, according to JPMorgan Chase & Co. Futures slid 1.7 percent yesterday amid government talks with the opposition. U.S. crude inventories probably rose for a fourth week, a Bloomberg News survey showed before an Energy Department report. Supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil, are at the highest since at least 2004. “The reason for the moderation, especially with WTI, is the continued high stocks at Cushing, coupled with the fact that some of the geopolitical unrest in Egypt seems to be abating,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. Gasoline inventories probably climbed to the highest level in almost 21 years, according to the survey. Supplies of the motor fuel increased 3 million barrels, or 1.3 percent, from 236.2 million a week earlier, according to the median of 10 analyst estimates. The projected advance would leave stockpiles at the highest since March 1990.
Obama Said to Want Interest-Rate Relief for State Unemployment Programs. President Barack Obama is considering seeking aid for state unemployment insurance programs burdened by debt because of high unemployment rates, according to a person familiar with the discussions. As part of the 2012 fiscal budget, Obama will seek a delay of state tax increases and a suspension of interest payments on state debt, the person said on condition of anonymity before the budget is released Feb. 14. Under existing law, some states would be required to raise taxes next year due to federal rules covering shortfalls in unemployment insurance funds. Obama is proposing a moratorium on those tax increases and interest payments in 2011 and 2012, the person said. U.S. states face a total budget deficit of at least $125 billion next fiscal year and have responded with proposals to cut education, health care and other programs, according to the Center on Budget and Policy Priorities. Every state except Vermont is constitutionally required to balance its budget.
Wall Street Journal:
Foreign Islamists Get Little Support in Eqypt. Iran and its ally Hezbollah have been quick to claim kinship with the mass demonstrations in Egypt, describing them as part of a "regional Islamic awakening," but the reaction from Egypt's own Islamic movement has been lukewarm. The latest endorsement of the protesters came Monday when Seyed Hassan Nasrallah, leader of the political and militant Shiite group Hezbollah, gave a televised speech to a crowd of several hundred supporters gathered at an auditorium in south Beirut waving Egyptian and Hezbollah flags. "The resistance Egyptians demonstrate does not differ from the resistance of Hezbollah during the 2006 war with Israel," Mr. Nasrallah said. "I wish to be with you and offer my blood to support your cause." Iran and Hezbollah have reveled in the upsurge of opposition to Egypt's President Hosni Mubarak, a traditional U.S. ally and one of their main rivals for regional influence. Moreover, the prospect of Egypt's Muslim Brotherhood gaining more power if Egypt holds free elections has raised fears in the U.S. that the pro-democracy movement could be hijacked by Islamists. During Friday's prayer sermon, Iran's supreme leader, Ayatollah Ali Khamenei, said the oppressed people of Egypt and Tunisia were aspiring for an Islamic state modeled after Iran and that the street demonstrations were "liberating Islamic movements."
Cash Buyers Lift Housing. Buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or near bottom and breathing life into some of the nation's most battered housing markets.
Pay Gap Widens at Big Law Firms as Partners Chase Star Attorneys. Some of the biggest law firms are paying outsize salaries to star attorneys, in some cases 10 times what they give other partners, in a strategy that is stretching compensation gaps and testing morale at firms.
Chipotle(CMG) Under Scrutiny by ICE. Chipotle Mexican Grill Inc., a burrito chain that owns and operates about 1,100 outlets across the U.S., was forced to let go of hundreds of workers in Minnesota over recent weeks amid an immigration probe that has spread to other states.
In Europe, an Effort to Shed Light on Short-Selling. The hedge fund manager David Einhorn does not seem to mind revealing his bets against a company, at least on his own terms. Over the years, Mr. Einhorn, the founder of Greenlight Capital, has announced several major short positions, most notably in 2008 when he publicly derided Lehman Brothers just months before the investment bank collapsed. But now Mr. Einhorn and other large investors do not have a choice in France, where regulators started requiring money managers to disclose on a daily basis the stocks they bet against in the country.
Concerns Grow Over Egypt's WMD Research. With Egypt in revolt and the country’s future uncertain, concern is growing over whether a new government in the Arab world’s most militarily and industrially advanced country could accelerate an arms race in one of the world’s most volatile regions. At the heart of the concern is intelligence indicating that Egypt has quietly carried out research and development on weapons of mass destruction, including nuclear, chemical, biological and missile technology. The research and development has continued virtually without pause over the past three decades, according to interviews with U.S. officials and a review of intelligence and other government documents by NBC News. Specifically, the intelligence indicates that Egypt has carried out experiments in plutonium reprocessing and uranium enrichment, helped jump-start Saddam Hussein’s missile and chemical weapons programs in Iraq, and worked with Kim Jong Il on North Korea’s missile program. “If we found another country doing what they’ve done, we would have been all over them,” said a former U.S. intelligence official, speaking on condition of anonymity. The reason the U.S. didn’t move, officials say, was Egypt’s role as a staunch U.S. ally and stabilizing force in the Middle East and later as a key player in U.S. counterterrorism efforts. If Egyptian President Hosni Mubarak is forced to step down, new leadership in Cairo could mean a radical change in that relationship, analysts say. In fact, at least one nuclear proliferation analyst believes that a shift may already be under way in Egyptian policy and that the U.S. may have to deal with Cairo withdrawing from the Nuclear Non-Proliferation Treaty which it signed and ratified in 1968. And Cairo already has given indications that it may harbor nuclear ambitions, according to analysts inside and outside the U.S. government.
Politico:
Democratic Moderates Chart Own Course on Health Care Reform. A handful of moderate Senate Democrats are looking for ways to roll back the highly contentious individual mandate — the pillar of President Barack Obama’s health care law — a sign that red-state senators are prepared to assert their independence ahead of the 2012 elections. They haven’t decided whether to propose legislation, but any effort by moderate Democrats that takes aim at the individual mandate could embarrass Obama and embolden Republicans who are still maneuvering to take down the health care law. And it’s not just health care. The senators are prepared to break with the White House on a wide range of issues: embracing deeper spending cuts, scaling back business regulations and overhauling environmental rules. The moderates most likely to buck their party include Sens. Joe Manchin of West Virginia, Ben Nelson of Nebraska, Claire McCaskill of Missouri and Jon Tester of Montana — all of whom are up for reelection in 2012 and represent states Obama lost in 2008. The goal is to lay down a record of bipartisan compromises with Republicans, but it could also put Obama at odds with key centrists, right at the moment the president himself is looking to forge a more centrist path.
USA Today:
Investors Are Evacuating Emerging Markets Funds. Investors are fleeing emerging markets funds — which may in itself push down those markets further. Worldwide, investors yanked a record $7 billion from emerging markets funds the week ended Feb. 2, according to EPFR, which tracks the funds. That's about 1% of the funds tracked by EPFR, says Brad Durham, the company's managing director. The average emerging markets fund, which invests in small or developing stock markets, has fallen 2.8% this year, according to Lipper. The turmoil in Egypt may have prompted some investors to flee. The country's stock market — currently closed — has fallen 21.1% this year.
Reuters:
Muslim Brotherhood Warns It Could Quit Talks With Egyptian Government. U.S. President Barack Obama said on Monday talks to resolve Egypt's crisis were making progress, but the main Islamist opposition in Cairo said it could quit the process if protesters' demands were not met. Obama's comments seemed to contradict those by Egyptian opposition figures who reported little progress in talks over demands including the immediate exit of President Hosni Mubarak. Protesters barricaded in a tent camp in Tahrir Square in the heart of Cairo have vowed to stay until Mubarak quits and hope to take their two-week campaign to the streets with more mass demonstrations on Tuesday and Friday. The potential rise to power of the banned Muslim Brotherhood, widely seen as by far the best organised opposition group, troubles Egypt's Western allies and neighbour Israel, which has a peace treaty with the Arab country. Obama said on Sunday the Brotherhood lacks majority support. On Monday the White House expressed concern about the group's "anti-American rhetoric", but stopped short of saying it would be against the group taking a role in a future government.
Islamist Rebel Says He Ordered Russian Bombing. Islamist rebel leader Doku Umarov said on Monday he had ordered a suicide bombing that killed 36 people at Russia's busiest airport last month. Umarov, 46, speaking in a video carried by the Islamist website www.Kavkazcenter.com, said there would be further such attacks in pursuit of an independent Muslim state governed by Sharia law in Russia's Caucasus region -- a territory embracing Chechnya, Dagestan and other nearby territories. Umarov appeared in the video, apparently made on the day of the January 24 attack on Moscow's Domodedovo airport, wearing combat fatigues, talking quietly and hesitantly. "The special operation today in Moscow ... was carried out on my orders," said Umarov, who styles himself the Emir of the Caucasus. "These special operations will continue ... to show the chauvinist regime of (Russian Prime Minister Vladimir) Putin in Moscow ... that we can carry out these operations where we want and when we want," he said, pointing a finger toward the camera. The attack bore the hallmark of Caucasus rebels but Monday's video was the first time Umarov had claimed direct responsibility for it.
Veeco(VECO) Sees Q1 Below Est On Longer Sales Cycle. Chip gear maker Veeco Instruments Inc expects a longer sales cycle and forecast first-quarter results below analysts' estimates, sending its shares down 9 percent in extended trading.
The NFIB Small Business Optimism Index for January is estimated to rise to 94.0 versus a reading of 92.6 in December.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Fisher speaking, Fed's Lockhart speaking, Fed's Lacker speaking, JOLTs Job Openings for December, IBD/TIPP Economic Optimism for February, weekly retail sales reports, weekly ABC Consumer Confidence reading, $32 billion 3-Year Treasury Notes Auction, $22 billion 1-Year Treasury Bills Auction, Barclays Industrial Conference and the (EMC) strategic forum could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and automaker 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 80.79 -1.46%
European Financial Sector CDS Index 134.42 bps +6.13%
Western Europe Sovereign Debt CDS Index 163.50 bps +1.03%
Emerging Market CDS Index 210.28 -.14%
2-Year Swap Spread 20.0 -1 bp
TED Spread 17.0 unch.
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 288.0 unch.
China Import Iron Ore Spot $185.60/Metric Tonne unch.
Citi US Economic Surprise Index +63.20 -.9 point
10-Year TIPS Spread 2.35% -1 bp
Overseas Futures:
Nikkei Futures: Indicating +48 open in Japan
DAX Futures: Indicating -7 open in Germany
Portfolio:
Higher: On gains in my Medical, Ag 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 higher, despite recent equity gains, Mideast tensions, emerging markets inflation worries and rising long-term rates. On the positive side, Airline, Education, REIT, Homebuilding, Construction, Insurance, Hospital, Medical, I-Banking, Bank, Computer and Software shares are especially strong, rising more than 1.0%. Small-cap and cyclical stocks are outperforming. (XLF)/(IYR) have traded well throughout the day. Oil is falling -1.77% and the 10-year yield is stable at 3.64%. The Egypt sovereign cds is falling -8.69% to 345.0 bps and the Saudi sovereign cds is plunging -13.38% to 110.44 bps. The ISE Sentiment Index hit 34.0 today, the lowest since August 18th, which is also a positive. On the negative side, Food and HMO shares are under mild pressure, falling more than .75%.The UBS-Bloomberg Spot Ag Index is gaining +.55% and copper is dropping -.49%. The Spain sovereign cds is up +3.58% to 160.45 bps, the Belgium sovereign cds is rising +3.58% to 160.45 bps, the Italy sovereign cds is gaining +4.42% and the Portugal sovereign cds is rising +3.51% to 419.22 bps. The Citi Eurozone Economic Surprise Index appears to be rolling over, falling -14.26% to +45.70. Hong Kong was down -1.49% overnight as Shanghai remains closed. The major US averages continue to trade very well as they slowly build on their recent technical breakouts. I expect US stocks to trade modestly higher into the close from current levels on earnings optimism, technical buying, US fund inflows, buyout speculation, short-covering, falling energy prices and rising economic optimism.
Egypt's Leaders Vow Progress on Elections as Cairo Protesters Hold Ground. Egypt’s government promised progress within a month toward free elections, a move intended to persuade protesters to leave Cairo’s Tahrir Square after two weeks of rallies aimed at toppling President Hosni Mubarak. Demonstrators held their ground, with many preparing to spend another night in the square, as talks between the government and opposition politicians helped the country’s financial system take steps toward normality. Banks began to open and the sale of Treasury bills resumed today. Stock trading won’t resume until Feb. 13, the bourse said. “I think everyone’s going to be tiptoeing through a number of minefields,” Daniel Charles Kurtzer, ambassador to Egypt from 1998 to 2001 under President Bill Clinton, said today in a Bloomberg Television interview. “The dialogue that started yesterday has some distance to go before any kind of bridge can be built between each side.”
Ensco(ESV) to Acquire Rival Driller Pride(PDE) for $7.3 Billion. Ensco Plc, the oil driller with rigs from Mexico to Indonesia, agreed to acquire Pride International Inc. for $7.3 billion in a deal that will create the world’s second-largest offshore drilling company. Investors will receive 0.4778 Ensco share and $15.60 in cash for each Pride share under terms of the agreement announced today by London-based Ensco in a statement. The $41.60 a share offer is a 21 percent premium to Houston-based Pride’s Feb. 4 closing price. The Pride acquisition will expand Ensco’s presence to Brazil and West Africa, two of the fastest-growing offshore drilling markets in the $125 billion industry, said Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston. Ensco’s presence in Brazil will jump from one rig to 10 as a result of the Pride agreement.
Oil Falls for a Third Day on Ample U.S. Supplies, Demand Drop. Oil declined for a third day on skepticism that a rebounding U.S. economy will reduce surplus inventories in the world’s biggest oil-consuming country. Oil fell as much as 1 percent as supplies at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate, climbed to the highest level since at least 2004, the Energy Department said last week. Gasoline rose 6.15 million barrels to 236.2 million in the week ended Jan. 28, the highest level since March 1993, the department reported Feb. 2. “There’s no fundamental reason for the market here to show strength,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Gasoline supplies are at an 18-year high, there’s a large amount of crude oil at Cushing and fuel demand is tepid.” Crude oil for March delivery declined 39 cents, or 0.4 percent, to $88.64 a barrel at 10:46 a.m. on the New York Mercantile Exchange. Futures are up 25 percent from a year ago. Total fuel demand decreased 0.3 percent to 18.8 million barrels a day in the week ended Jan. 28, the lowest level since November, according to the department’s report.
Berkshire(BRK/A) Wins Backing of Wesco Board for $547.6 Million Buyout. Warren Buffett’s Berkshire Hathaway Inc. won the backing of Wesco Financial Corp.’s board to buy the 19.9 percent of stock it doesn’t own in the unit. The deal values the stake at $547.6 million, Pasadena, California-based Wesco said today in a statement.
UBS Raises S&P 500 2011 Forecast to 1,425 on Earnings, Economy. UBS AG boosted its year-end projection for the Standard & Poor’s 500 Index by 100 points to 1,425, as the outlook for the economy and earnings improve. The new target would mean a 13 percent rally for the full 2011 and an 8.7 percent advance from Feb. 4’s closing price.
Chesapeake Energy(CHK) Plans to Sell Assets for $5 Billion. Chesapeake Energy Corp., the most- active U.S. natural-gas driller, intends to raise $5 billion this year by selling its Fayetteville shale holdings and its stakes in two companies. It will use the money to cut debt. The sale will include 487,000 net acres in the Arkansas shale field that produce the equivalent of 415 million cubic feet of gas daily, Oklahoma City-based Chesapeake said in a statement today. The company also will sell its stakes in closely held service company Frac Tech Holdings LLC and Chaparral Energy Inc.
Danaher(DHR) to Purchase Beckman Coulter(BEC) for $6.8 Billion. Danaher Corp. agreed to buy Beckman Coulter Inc. for $6.8 billion to expand in health-diagnostic equipment amid increasing demand from an aging U.S. population that needs more frequent testing. Danaher, the maker of microscopes and water-treatment systems, will start a tender offer of $83.50 a share for the 76- year-old company’s outstanding shares within seven days, the company said today in a statement. The total valuation includes available cash and net debt, Danaher said.
Bloomberg Says Cuomo Budget Costs City $2.1 Billion. New York Mayor Michael Bloomberg told Albany lawmakers his city would lose about $2.1 billion and have to waste money on state-required spending formulas if they failed to change Governor Andrew Cuomo’s proposed budget.
Chinese Steel Drill-Pipe To Face U.S. Dumping Duties, ITC Rules. Chinese makers of steel pipe used to drill for oil will face dumping and subsidy duties averaging 86 percent, after the U.S. International Trade Commission ruled that competitors may be hurt by the low-cost imports. The independent panel today ruled 3-to-3, a tie that affirmed the decision and makes the action final. Duties will take effect this month.
Wall Street Journal:
Cairo Normalizes; Sinai Is Shelled. Life in Egypt edged further back toward normal Monday, as a popular uprising entered its third week with no further progress in narrowing the gap between the regime and demonstrators who insist President Hosni Mubarak must step down. Egypt firmed up security in the capital, with lots of plainclothes policemen seen on the streets wearing bulletproof vests and visible sidearms. In northern Sinai on Monday, assailants used rocket-propelled grenades to attack a police barracks in the town of Rafah, which borders the Gaza Strip, according to Egypt's state news agency.
Tibet Ad Not Likely to Help Groupon in China. A Groupon Super Bowl commercial that pokes fun at the political situation in Tibet has managed to offend viewers both in the U.S. and China, and may have consequences for the fast-growing Internet company’s expansion plans.
Bloomberg Businessweek:
Ticonderoga Said to Reach Preliminary Agreement to Buy Soleil. Ticonderoga Securities LLC, the New York-based broker-dealer started in 2009, has reached a preliminary agreement to buy Soleil Securities Corp., according to two people with direct knowledge of the situation.
SEC Officials Who Missed Madoff Now in Top Spots at Major Law Firms. They blew off the biggest securities fraud in history -- and got a career boost and hefty pay raise. Several former senior officials at the Securities and Exchange Commission who had the power and tools to stop Bernie Madoff in his criminal tracks -- yet ignored warnings for nearly two decades -- have moved on to lucrative law-firm partnerships, The Post has learned. "Everybody made out like bandits except for the people who were really screwed," said a former ranking SEC attorney, who left the agency before the Madoff case exploded. "It's such an outrage, how bad it was. And they're all making well over seven figures now."
Needham Ups Apple(AAPL) Price Target to $450 on Growing iPhone, iPad Sales. Needham & Company on Monday increased its price target for Apple to $450, citing "materially higher" sales of iPhone and iPad than were originally forecast. Analyst Charlie Wolf with Needham said in a note to investors that he has made an upward revision to his forecast, which prompted the price target increase from $375 to $450. "While the increase in iPhone sales was relatively modest, it nonetheless added $50 to our price target because of the profitability of the phone," Wolf wrote. "The migration to feature phone users to smartphones accelerated in the second half of 2010, suggesting that even our new forecast could prove to be conservative."
68% Believe Government and Big Business Work Together Against the Rest of Us. President Obama told the U.S. Chamber of Commerce today that government and business “can and must work together." But 68% of Likely U.S. Voters believe that government and big business already work together against the interests of consumers and investors. The latest Rasmussen Reports poll shows that only 13% disagree with this assessment.
Chamber Claps Twice for Obama. The good news for President Obama: The Chamber of Commerce broke into applause twice during his speech Monday morning to welcome his ideas. The bad news: They clapped just twice, in a 35-minute address.
Heath Shuler: Nancy Pelosi Ignoring Blue Dogs. Centrist Democrats have had “no communication” with House Minority Leader Nancy Pelosi since the start of the 112th Congress, one of the leaders of the Blue Dog Coalition said Monday. Rep. Heath Shuler (D-N.C.), who challenged Pelosi for the leadership spot, said on MSNBC’s “Morning Joe” that “there’s been really no communication whatsoever” between his group and the California Democrat. “We still have not had the connection between the Blue Dog members and the leadership.”
Reuters:
With New Executive, Google(GOOG) Steps Up Mobile Ad Efforts. Google Inc is reaching out to some of its top advertising customers to promote its mobile marketing services, as the Internet giant moves to expand its advertising business from computer screens to smartphones. The effort is being overseen by Karim Temsamani, Google's first-ever head of mobile advertising, who quietly began the job in October.
U.S. Travelers Plan More Breaks, Spending: Poll. Despite high unemployment and a slow recovery more people are planning to travel this year and they expect to spend more money than they did in 2010, according to a new report. Thirty five percent of 1,403 consumers surveyed by travel website travelocity.com said they will increase their travel in 2011, and only one percent said they do not plan to go anywhere, compared to four percent last year.
Report: Russia Warns US Over Missile Defense Plans. Russia sees the planned U.S. missile defense system as a potential threat to its nuclear forces and may review its participation in a landmark nuclear arms treaty, officials said Monday. The New START deal, the centerpiece of Barack Obama's efforts to reset ties with Russia and the most significant arms control pact in nearly two decades, took effect last week. It limits each country to 1,550 strategic warheads, down from the current ceiling of 2,200. The treaty doesn't prevent the U.S. from building new missile defense systems, but Russia has warned that it reserves the right to withdraw from the treaty if the United States significantly boosts its missile shield.
Telegraph:
US Backs Brazil in Currency War With China.Timothy Geithner, the US Treasury Secretary, has voiced tacit support for Brazil in its "currency war" with China in a sign that the two giants of the Americas will work together to tackle the issue.
Ta Nea:
Greek Deputy Prime Minister Theodoros Pangalos rejected a proposal by German Chancellor Angel Merkel to include limits on debt in government constitutions, citing an interview with Pangalos.
