North American Investment Grade CDS Index 86.06 +.88%
European Financial Sector CDS Index 131.66 bps +.83%
Western Europe Sovereign Debt CDS Index 178.33 bps +.47%
Emerging Market CDS Index 231.29 +.09%
2-Year Swap Spread 18.0 +1 bp
TED Spread 19.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .12% +1 bp
Yield Curve 271.0 -3 bps
China Import Iron Ore Spot $184.90/Metric Tonne -.43%
Citi US Economic Surprise Index +77.10 -.1 point
10-Year TIPS Spread 2.43% +2 bps
Overseas Futures:
Nikkei Futures: Indicating -12 open in Japan
DAX Futures: Indicating +5 open in Germany
Portfolio:
Higher: On gains in my Technology, Medical, Biotech, Retail longs and emerging market shorts
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 is reversing higher despite Mideast Unrest, rising eurozone debt angst and US housing concerns. On the positive side, Airline, Road & Rail, Education, Homebuilding, Construction, HMO, Hospital, Wireless, Networking, Disk Drive, Semi, Software, Internet, Steel, Alt Energy and Defense shares are especially strong, rising more than 1.0%. Small-cap shares are outperforming. As well, transport and tech shares are relatively strong. Oil and gold have had significant downside reversals on unconfirmed news. The UBS-Bloomberg Spot Ag Index is also down -.55%. Copper is rising +1.48%. The 10-year yield is falling -3 bps to 3.45%. The US Muni CDS Index is falling -2.23% to 169.25 bps. The AAII % Bulls fell to 36.63 this week, while the % Bears rose to 36.14, which is also a big positive. On the negative side, Oil Service and Oil Tanker shares are under pressure, falling more than 1.0%. Cyclicals are underperforming again and (XLF)/(IYR) are relatively weak. Lumber is declining another -3.15% and has broken down again technically. The Saudi sovereign cds is rising +1.31% to 141.79 bps and the Israeli sovereign cds is rising +2.02% to 176.63 bps. Moreover, the Spain sovereign cds is rising +2.95% to 271.83 bps, the Belgium sovereign cds is climbing +2.92% to 181.80 bps and the Italy sovereign cds is gaining +3.62% to 191.33 bps. Investor complacency regarding the situation in the Mideast still seems too high, however the technical reversal lower in oil after it repeatedly failed to hold $100/bbl. is noteworthy. If oil follows through to the downside tonight and in the morning I would expect to see further equity strength. One of my longs, (SXCI), is surging 6% today on volume after earnings. I still see substantial upside to the shares over the longer-run. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, short-covering, bargain-hunting and lower long-term rates.
Qaddafi Urges End to Violence as Foes Increase Control in East. Libya’s Muammar Qaddafi, who has lost control of much of the country’s oil-rich east, appealed to citizens to end violence as his forces stepped up a crackdown on opponents and more than 100 people were reportedly shot dead. Qaddafi blamed the uprising against his 41-year rule on “drugged kids” and al-Qaeda, speaking by telephone on state television today for the first time since a Feb. 22 speech in which he vowed to fight “until his last drop of blood.” He said he regretted the deaths during the unrest. “You want to change the government -- you can do it any day through the revolutionary committees,” Qaddafi said, referring to his own state structures. He said protesters had no demands of their own and were echoing those of Osama bin Laden.
Gasoline, Heating Oil Reach 29-Month Highs on Libya Revolt. Gasoline and heating oil surged to 29-month highs on concern that Libya’s political uprising threatens fuel supplies and that unrest will spread across North Africa and the Middle East. Futures rose as the turmoil in Africa’s third-biggest oil producer sent crude traded on the New York Mercantile Exchange above $100, with Brent reaching $119.79 in London. Foreign governments began discussing intervention as opponents of Libyan leader Muammar Qaddafi consolidated control over cities in the oil-rich east while he clamped down on Tripoli. “We’re still looking at the biggest threat to oil supplies in my lifetime,” said Phil Flynn, vice president of research at PFGBest in Chicago. “That’s what’s keeping us up. This is all about what’s going on in the Middle East” and North Africa. Gasoline for March delivery gained 5.24 cents, or 1.9 percent, to $2.7673 a gallon at 12:30 p.m. on the New York Mercantile Exchange. Prices touched $2.856, the highest level for the front-month contract since Sept. 12, 2008. Futures have risen 11 percent since anti-government protests began Feb. 15 in Libya, a member of the Organization of Petroleum Exporting Countries. Gasoline is the day’s biggest gainer, followed by crude oil and heating oil, on the Thomson Reuters/Jefferies CRB Index of 19 raw materials.
Sales of New U.S. Homes Fell More Than Forecast in January. Purchases of new houses in the U.S. fell more than forecast in January, reflecting declines in the West and South that indicate a California tax credit and bad weather may have played a role. Sales declined 13 percent to a 284,000 annual pace, figures from the Commerce Department showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease to a 305,000 rate. Demand dropped 37 percent in the West and 13 percent in the South.
Saudi Man Arrested in Texas on Weapons Charge May Have Been Targeting Bush. A 20-year-old Saudi man was arrested in Texas on charges he purchased chemicals to make an explosive device and researched potential U.S. targets, including the Dallas address of former President George W. Bush, according to the Justice Department. Khalid Ali-M Aldawsari, was arrested yesterday by FBI agents on a charge of attempted use of a weapon of mass destruction, the Justice Department said in a statement today. Aldawsari allegedly wrote in a journal that he was inspired by al-Qaeda leader Osama bin Laden and that he was planning for jihad, according to court papers filed by the government.
India's Sensex Falls Most Since November 2009 on Inflation, Oil Concerns. India’s benchmark stock index tumbled the most in more than 15 months as food-price gains accelerated and surging oil prices stoked concern inflation will lead to higher interest rates. Tata Motors Ltd., the nation’s biggest truck-maker, sank 7.8 percent, the most in 22 months. Larsen & Toubro Ltd., the largest engineering company, slid 5.3 percent. An index of wholesale farm-product prices rose 11.49 percent in the week ended Feb. 12 from a year earlier, after climbing 11.05 percent the previous week, the commerce ministry said today. Oil surged to the highest in 30 months in London as Libya’s violent uprising cut supplies from Africa’s third-biggest producer. The Bombay Stock Exchange Sensitive Index, or Sensex, slid 545.92, or 3 percent, to 17,632.41 at the 3:30 p.m. close in Mumbai, the biggest drop since Nov. 3, 2009.
Greek, Irish Bonds Fall as Crude Oil Gain Damps Demand for Riskier Assets. Greece and Ireland led declines in the bonds of the euro region’s most-indebted nations as escalating violence in Libya pushed the price of oil to a 30- month high, sapping demand for assets perceived to be risky. Greek 10-year yields climbed 11 basis points, or 0.11 percentage point, to 11.86 percent at 4:24 p.m. in London, after reaching 11.89 percent, the highest level since Jan. 11. The Irish 10-year yield surged 17 basis points to 9.32 percent. Portuguese 10-year yields added four basis points to 7.50 percent, while Italian 10-year yields gained one basis point to 4.84 percent.
OPEC to Cut Exports on Declining Fuel Demand, Oil Movements Says. The Organization of Petroleum Exporting Countries will ship less crude this month because of declining demand for winter fuels and as refineries halt for maintenance, according to tanker-tracker Oil Movements. Loadings will slip to 23.88 million barrels a day in the four weeks to March 12, down 1.3 percent from 24.19 million a day in the equivalent period to Feb. 12, the tanker-tracker said today in a report. In the four weeks to March 12 exports from Middle Eastern producers, including non-OPEC members Oman and Yemen, will fall by 1.7 percent to 17.81 million barrels a day, Oil Movements’ data show.
Wheat Resumes Plunge as Unrest Across North Africa Drives Away Speculators. Wheat extended a collapse and corn and soybeans also fell as traders speculated that a jump in energy costs caused by protests across North Africa and the Middle East will curb growth and demand for grains. Riots already ousted leaders in Egypt, the world’s biggest wheat importer, and in Tunisia, and opposition groups have seized control of eastern cities in Libya. While wheat traded in Chicago dropped 10 percent in the past four sessions, crude oil traded in New York jumped 15 percent.
Fed May Need to Taper $600 Billion in Purchases, Bullard Says. The Federal Reserve’s planned $600 billion in Treasury purchases helped improve the U.S. economic outlook and the policy debate may turn to whether to reduce the program scheduled through June, St. Louis Fed President James Bullard said. “The natural debate now is whether to complete the program, or to taper off to a somewhat lower level of asset purchases,” Bullard said in the text of a speech today in Bowling Green, Kentucky.
Wall Street Journal:
U.S. Fears Tripoli May Deploy Gas As Chaos Mounts.The government of Col. Moammar Gadhafi hasn't destroyed significant stockpiles of mustard gas and other chemical-weapons agents, raising fears in Washington about what could happen to them—and whether they may be used—as Libya slides further into chaos. Tripoli also maintains control of aging Scud B missiles, U.S. officials said, as well as 1,000 metric tons of uranium yellowcake and vast amounts of conventional weapons that Col. Gadhafi has channeled in the past to militants operating in countries like Sudan and Chad. Current and former U.S. officials said in interviews that Washington's counterproliferation operations against Libya over the past decade have scored gains, in particular the dismantling of Tripoli's nascent nuclear-weapons program and its Scud C missile stockpiles. But the level of instability in Libya, and Col. Gadhafi's history of brutality, continues to make the U.S. focus on the arms and chemical agents that remain, they said.
Gadhafi Blames al Qaeda; Rebels Promise Offensive. Libyan leader Moammar Gadhafi accused his opponents of being under the sway of al Qaeda Thursday, as rebels controlling large swathes of the country promised an offensive against the capital, Tripoli. Speaking by telephone to state television, the increasingly isolated leader directed his 23-minute address to citizens of al-Zawiya, an industrial town just 30 miles west of Tripoli where gun battles raged Thursday. "What is this farce? You in al-Zawiya turn to bin Laden?" he said. "He brainwashed your sons."
Saudis Stand Ready to Fill Oil Gap. Saudi Arabia said it is in "active talks" with European oil companies to make up the shortfall in Libyan oil production that has helped push oil prices towards $120 a barrel and raised fears for the global economic recovery. A senior Saudi petroleum official said the kingdom is in talks with refiners on "whether they need extra oil, and if so, what quality and quantity and on what kind of time scale." He added: "We can supply it immediately."
Issa Subpoenas Obama Administration. House Oversight Chairman Darrell Issa (R., Calif.) has issued his first subpoenas to the Obama administration, seeking testimony from two Department of Homeland Security employees about their handling of freedom-of-information requests, according to committee Democrats who objected to the move.
Gasparino: Nasdaq's Bob Greifeld Feeling "Incredible Shareholder Pressure". FOX BusinessNetwork Senior Correspondent, Charlie Gasparino, is reporting this morning that NASDAQ's (NASDAQ: NDAQ) Chief, Bob Greifeld, is feeling “incredible shareholder pressure” to do something about the merger of the New York Stock Exchange (NYSE: NXY) and Deutchse Boerse. This includes exploring a hostile bid for the NYSE.
Libyan Opposition Reportedly Seizes Key Western City. Opponents of Moammar Kadafi are said to have taken control of Misurata, Libya's third largest city and where Kadafi traditionally has maintained strong tribal support.
Lobbyists: White House Sends Meetings Off-Site to Hide Them. Caught between their boss’ anti-lobbyist rhetoric and the reality of governing, President Barack Obama’s aides often steer meetings with lobbyists to a complex just off the White House grounds — and several of the lobbyists involved say they believe the choice of venue is no accident. It allows the Obama administration to keep these lobbyist meetings shielded from public view — and out of Secret Service logs kept on visitors to the White House and later released to the public.
Reuters:
Libya Placed Billions of Dollars at U.S. Banks - WikiLeaks. Libya's secretive sovereign wealth fund has $32 billion in cash with several U.S. banks each managing up to $500 million, and it has primary investments in London, a confidential diplomatic cable shows. The cable, obtained by WikiLeaks and revealing the details of a January meeting between the head of the Libyan Investment Authority (LIA) and the U.S. ambassador in Tripoli, comes as the United States and European governments explored the possibility of freezing assets belonging to the Libyan government.
Caixin Online:
China's Housing Inventory Valued at 75% of GDP. Beijing-based UBS economist Wang Tao singled out the country's property bubble as the largest macroeconomic risk in the coming few years. As the debate over the real estate bubble continues to simmer, some have estimated that China's housing inventory value could be as high as 350 percent of last year's GDP, similar to Japan's 20 years ago just before the property bubble burst.
Economic Observer:
About 58% of a total 447 coal power stations under China's five major power generation groups made losses by the end of October last year, citing China Electricity Council.
Qaddafi Is No Mubarak; Overthrow May Mean 'Descent to Chaos'. Muammar Qaddafi may leave Libya without a way of avoiding further bloodshed. After protesters forced out the leaders of Tunisia and Egypt, both countries had constitutions that laid out the transfer of power to caretakers who are now negotiating a path to greater democracy. Libya, where Qaddafi has ruled since his coup overthrew the monarchy in 1969, has no constitution and political parties and unions have been banned for 35 years. “If Qaddafi goes, there will be an enormous vacuum, not just politically, but also socially and economically,” Diederick Vandewalle, a professor at Dartmouth College in New Hampshire, said by telephone. “There’s no organization that could interact between the government and the protesters.” Libya, home of Africa’s largest oil reserves, may be set for a longer and bloodier period of unrest than its neighbors as Qaddafi, the world’s longest serving non-royal leader, clings to power and no alternative leader emerges.
Cameron Says World May Need to Act to Stop Libyan Repression. The international community may need to take action to halt attempts by the Libyan leader, Muammar Qaddafi, to crush a revolt against his regime, U.K. Prime Minister David Cameron said. It’s still open to Colonel Qaddafi to stop that behavior,” Cameron said in an interview in Qatar yesterday for Al Jazeera television. “More will have to be done if this violence continues.”
Oil Surges on Libya Disruption; Goldman(GS) Sees 'Upside Risk'. Oil surged to the highest in almost two and half years in London as Libya’s violent uprising cut supplies from Africa’s third-biggest producer. Futures in New York gained a sixth day, after trading at $100 a barrel yesterday, amid estimates the revolt has resulted in the loss of as much as two-thirds of the Libya’s oil output. The cuts create “significant upside risk” to prices by reducing OPEC’s ability to absorb any escalation of supply disruptions in the Middle East, Goldman Sachs Group Inc. said. Brent oil for April settlement rose as much as $1.75, or 1.6 percent, to $113 a barrel on London’s ICE Futures Europe exchange today, the highest since Sept. 1, 2008. The contract traded at $112.95 at 10:18 a.m. in Singapore. It rallied 5.2 percent yesterday. Crude for April delivery gained as much as $1.33, or 1.4 percent, to $99.43 a barrel in electronic trading on the New York Mercantile Exchange. Yesterday, it closed up $2.68 at $98.10, the highest since Oct. 1, 2008. Prices are 24 percent higher than a year ago.
Wall Street Journal:
Gadhafi Flails as Libya Splinters. Forces loyal to strongman Col. Moammar Gadhafi imposed rough order in Libya's increasingly fearful capital Wednesday, witnesses said, that stood in sharp contrast to rebel gains in much of the oil-rich country. Gunshots echoed through the night in Tripoli as Col. Gadhafi clung to power even as the international community discussed ways to isolate him with sanctions. More territory slipped from his control, and rebels began to set up rudimentary governments in outlying areas under their sway. "No-one should count him out, but momentum isn't going his way," a U.S. official said.
Second Suspected Syria Nuclear Site Is Found. A second suspected nuclear installation has been identified in Syria, according to commercial satellite photos, providing new evidence that Damascus may have been pursuing atomic weapons before a 2007 Israeli military strike. The publishing Wednesday of the photos by Washington's Institute for Science and International Security could increase pressure on the United Nations to demand expansive new inspections of suspect Syrian facilities during a March board meeting of the International Atomic Energy Agency.
Inflation Concerns Rise Around Asia. Vietnam, Singapore Data, India Rally Underscore Challenges in Price Fight. Worries over inflation in Asia intensified as tens of thousands of people protested rising food prices in India and inflation rates jumped higher in Singapore and Vietnam. Big street rallies aren't uncommon in India, where millions of people subsist on low incomes. Moreover, similar protests have occurred in past years ahead of the Indian government's annual presentation of its budget, which this year is scheduled for Monday. Still, the rallies in Delhi Wednesday underscored how higher food costs, which helped trigger some of the unrest now sweeping the Middle East, represent an increasingly difficult challenge for some Asian governments.
US Pushes Mortgage Deal. The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars.
Chevron(CVX) Exec: Gulf Water Drilling Expected To Resume Before Midyear.Chevron Corp. (CVX), the second-largest U.S. oil company, expects to be able to resume its ambitious drilling program in the deepwater Gulf of Mexico before the first half of 2011 is over, executives with the company said Wednesday. "We are getting at the end of the road," Gary Luquette, Chevron's head for exploration and production in North America, said in an interview. "One time we thought it will be the end of the year, now our estimate is that it could be before the middle of the year."
The Public Worker Gravy Train. Leaders across the country are proposing restrictions on public employees' pay and benefits in order to put their budgets on a more sustainable path. The political left's counterattack is that government workers aren't overpaid compared to those in the private economy. Who's right?
CNBC:
Priceline(PCLN) Posts Higher Profit, Gives Rosy Forecast. Online travel agency Priceline.com posted on Wednesday a larger-than-expected quarterly profit on bookings growth and the company forecast stronger growth in the first quarter. The company's shares gained more than 5 percent in after-hour trading.
Stagflation Still Regarded as Economy's Dirty Little Secret. Despite rising commodity prices and a bleak employment picture, “stagflation” remains a word not uttered in the polite company of the financial world. But there remain only a few more tumblers to fall into place for a return to that awful word that conjures up images of the “malaise days” of the late 1970's and early ‘80s, where rising inflation and slumping employment tamped down economic growth.
MarketWatch:
Q&A With Kansas City Fed's Thomas Hoenig. Federal Reserve Bank of Kansas City President Thomas Hoenig is going to step down in October when he reaches the central bank's mandatory retirement age of 65, but he is not exactly going quietly into the night. Hoenig is pressing his message that the Fed needs to move away from zero-interest rate and that the $600 billion bond buying program was a mistake. While Federal Reserve Chairman Ben Bernanke has tried to distance Fed policy from the recent spike in global food and fuel prices, Hoenig says the easy money stance is clearly a factor.
Business Insider:
A Haunting Journey Into The Ruins Of Detroit. (pics) French photographers Yves Marchand & Romain Meffre compare the ruins of Detroit to "the Pyramids of Egypt, the Coliseum of Rome, or the Acropolis in Athens." Detroit's ruins are "remnants of the passing of a great Empire."
Prepare For a Trading Revolution: Here Comes Credit Default Swaps for Retail Investors. Ever felt excluded from the list of people who can (allegedly) buy insurance on their neighbor's house, and then burn it down? That's all about to change. The CBOE has announced that that on Tuesday, March 8, the Exchange will begin trading newly-designed Credit Event Binary Options (CEBOs) contracts. In essence these will be like Credit Default Swaps, accessible to everyone, which will have a $1000 payoff per contract in the event of a bankruptcy before contract expiration.
Pakistan's Intelligence Ready to Split With CIA. Pakistan's ISI spy agency is ready to split with the CIA because of frustration over what it calls heavy-handed pressure and its anger over what it believes is a covert U.S. operation involving hundreds of contract spies, according to an internal document obtained by The Associated Press and interviews with U.S. and Pakistani officials. Such a move could seriously damage the U.S war effort in Afghanistan, limit a program targeting al-Qaida insurgents along the Pakistan frontier, and restrict Washington's access to information in the nuclear-armed country.
Fraga Warns on Brazilian Credit Growth. The former central banker who laid the foundation for Brazil’s boom by helping to slay inflation has warned that rapid credit growth in the country needs close scrutiny from policymakers. Arminio Fraga, one of Brazil’s most successful former central bank presidents, said in an interview with the Financial Times that the quality of some new consumer lending was open to question, although Brazil was not approaching a “subprime”-style crisis.
China Files Subversion Charges Against Internet Users Who Spread Call to Protest. China filed subversion charges against Internet users who reposted a call for protests as the authoritarian government enforced its crackdown against any Middle East-style democracy movement, activists said. In addition to well-known activists who apparently remained in custody after being taken away ahead of the planned protests on Sunday, at least three people were detained on charges of "inciting subversion of state power," according to the Hong Kong-based Information Center for Human Rights and Democracy. China often uses the vaguely worded charge to lock up outspoken government critics.
Xinhua:
Shanghai set two rates for its new property tax based on the price per square meter of a property, citing the city's statistics bureau.
A Jasmine Revolution in China is an "absurd" possibility, citing Zhao Qizheng, head of the Committee of Foreign Affairs of the National Committee of the Chinese People's Political Consultative Conference.
China Securities Journal:
Five banks in Beijing stopped giving discounts on the benchmark interest rate for mortgage loans to buy first homes, citing bank officials.
China's money supply growth and the money expansion multiplier may drop in the second half of the year as fewer central bank bills come due.
DongA Ilbo:
North Korea recently set up a special police squad team to stamp out any riot movement in North Korea, citing Daily NK, a Seoul-based group that opposes the government of Kim Jong Il.
People's Daily:
China will this year "closely" prevent and "strictly" crack down on violence and terrorism activities that aim at splitting up China, Zhang Qingli, Tibet's Communist Party chief, wrote in a commentary.
China's southern province of Hainan will take measures to curb soaring property prices, citing Qu Jianmin, deputy secretary-general of the provincial government. Hainan must take steps to increase its housing supply and stop speculation in the market by the end of March, Qu said.
Evening Recommendations Citigroup:
Reiterated Buy on (PCLN), raised target to $575.
Wells Fargo:
Rated (CIEN) Outperform.
Night Trading
Asian equity indices are -1.50% to unch. on average.
Asia Ex-Japan Investment Grade CDS Index 112.0 -1.5 basis points.
The Chicago Fed National Activity Index for January is estimated to rise to .09 versus a reading of .03 in December.
Initial Jobless Claims for last week are estimated to fall to 405K versus 410K the prior week.
Continuing Claims are estimated to fall to 3880K versus 3911K prior.
Durable Goods Orders for January are estimated to rise +2.8% versus a -2.5% decline in December.
Durables Ex Transports for January are estimated to rise +.5% versus a +.5% gain in December.
Cap Goods Orders Non-Defense Ex Air for January are estimated to fall -1.0% versus a +1.4% gain in December.
10:00 am EST
New Home Sales for January are estimated to fall to 305K versus 329K in December.
The House Price Index for December is estimated to fall -.1% versus unch. in November.
11:00 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,100,000 barrels versus a +860,000 barrel gain the prior week. Distillate supplies are expected to fall by -1,200,000 barrels versus a -3,096,000 barrel decline the prior week. Gasoline inventories are estimated to rise by +850,000 barrels versus a +205,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -3.5% decline the prior week.
Upcoming Splits
(POT) 3-for-1
(UGP) 4-for-1
Other Potential Market Movers
The Fed's Bullard speaking, $29 Billion 7-Year Treasury Notes Auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (GGC) investor day and the (SNDK) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and mining shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 85.31 +3.71%
European Financial Sector CDS Index 131.17 bps -.34%
Western Europe Sovereign Debt CDS Index 177.50 bps +1.81%
Emerging Market CDS Index 230.98 +1.36%
2-Year Swap Spread 17.0 -6 bps
TED Spread 20.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .11% +1 bp
Yield Curve 274.0 -3 bps
China Import Iron Ore Spot $184.90/Metric Tonne -1.81%
Citi US Economic Surprise Index +77.20 +.6 point
10-Year TIPS Spread 2.41% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +11 open in Japan
DAX Futures: Indicating -9 open in Germany
Portfolio:
Slightly Higher: On gains in my Technology longs, ETF hedges and emerging market shorts
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades lower despite a pullback in oil from today's high, energy sector strength and positive economic data. On the positive side, Coal, Oil Tanker, Energy, Oil Service, Gold, Bank and Hospital shares are higher on the day. On the negative side, Airline, Disk Drive, Computer, Paper, Alt Energy, Road & Rail and Education shares are under significant pressure, falling more than 1.75%. Cyclicals and Small-Caps are substantially underperforming. The transports are breaking down on volume. Lumber is declining -2.06% and copper is down another -.6%.The Saudi sovereign cds is rising +1.41% to 139.95 bps and the Israeli sovereign cds is jumping +7.30% to 173.13 bps. Moreover, the Spain sovereign cds is rising +2.67% to 264.12 bps, the Greece sovereign cds is gaining +2.33% to 931.25 bps, the Belgium sovereign cds is climbing +2.87% to 177.75 bps and the Brazil sovereign cds is gaining +2.33% to 120.39 bps. China Iron Ore Spot has now fallen -3.65% over 5 days. Investor complacency regarding the situation in the Mideast still seems too high. Oil touched $100/bbl today. In my opinion, any meaningful break above $100/bbl., which is likely, will lead to further broad market weakness. I still believe any significant rise in food or energy prices from current levels will increase the odds of hard-landings in some key emerging market economies. So far, markets are, for the most part, not pricing in this possibility. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Mideast unrest, eurozone sovereign debt angst, technical selling, profit-taking, emerging market inflation fears and more shorting.
