North American Investment Grade CDS Index 84.51 +1.22%
European Financial Sector CDS Index 117.50 +.91%
Western Europe Sovereign Debt CDS Index 175.17 bps +1.15%
Emerging Market CDS Index 208.63 -2.12%
2-Year Swap Spread 20.0 -1 bp
TED Spread 21.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .10% -1 bp
Yield Curve 281.0 unch.
China Import Iron Ore Spot $172.80/Metric Tonne -2.15%
Citi US Economic Surprise Index +93.20 -4.3 points
10-Year TIPS Spread 2.53% +4 bps
Overseas Futures:
Nikkei Futures: Indicating -50 open in Japan
DAX Futures: Indicating -2 open in Germany
Portfolio:
Slightly Lower: On losses in my Retail, Tech and Medical longs
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered some of them
Market Exposure: 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 session highs, stable long-term rates and buyout speculation. On the positive side, Computer, Disk Drive, Utility and Restaurant shares are higher on the day. The Saudi sovereign cds is falling -2.81% to 129.34 bps. The UBS-Bloomberg Ag Spot Index is down -.4%. On the negative side, Gaming, Construction, Networking, Semi, Ag, Alt Energy and Coal shares are under significant pressure, falling more than 1.75% on the day. Cyclicals and small-caps are underperforming. The Portugal sovereign cds is rising another +1.59% to 490.17 bps, the Egypt sovereign cds is gaining +2.42% to 374.72 bps and the Greece sovereign cds is gaining another +5.04% to 1,037.50 bps.The Greece sovereign cds is very close to its record high set on 12/31/10 at 1,074.08 bps. The Citi Eurozone Economic Surprise Index is falling to +5.1 today, which is the lowest level since April 15th, 2010. The avg. US price for a gallon of gas is up another .04/gallon today to $3.51/gallon. It is now up .39/gallon in 18 days. The US dollar continues to trade poorly, notwithstanding today's small bounce. Oil is rising another +.4%, copper is falling -3.02% and gold is rising +.44%. China Iron Ore Spot is down -10.0% in 2 weeks. The stock bears are winning today, but have been unable to gain meaningful downside traction. Equity investor complacency regarding the deteriorating situation in the Mideast and the eventual negative effects of soaring commodities remains high. Oil will likely continue to grind higher until the situation in Saudi calms. It is hard to see this happening before next Friday's "day of rage". However, speculation by funds in oil is at very extreme levels and likely caps significant near-term upside in the commodity barring any new developments in the region. I continue to believe any significant reversal lower in oil to below $100/bbl would lead to new 52-week highs in stocks. I expect US stocks to trade mixed-to-lower into the close from current levels on rising energy prices, growing Mideast unrest, emerging market inflation fears, eurozone debt angst, more shorting and technical selling.
Qaddafi Escalates War Against Rebels as Libya Fight Deepens. Libyan troops loyal to Muammar Qaddafi used artillery and helicopter gunships to block rebels from advancing west from the oil hub of Ras Lanuf toward the leader’s hometown of Sirte. Rebel fighters withdrew from Bin Jawad, 110 miles (160 kilometers) east of Sirte, after battling reinforced pro-Qaddafi troops, said Khaled el-Sayeh, a coordinator between the opposition’s military forces and its interim ruling council in Benghazi. Nine rebels and two of Qaddafi’s soldiers were killed in the fighting, he said. The rebels said today they will bring in reinforcements from the east, the Associated Press reported.
Greek Debt Rating Cut Three Steps to B1 by Moody's on Rising Default Risk. The cost of insuring Greek debt against default rose to a record after Moody’s Investors Service cut the country’s credit rating by three notches. The Finance Ministry in Athens called the move, which sent its rating to B1 from Ba1, “completely unjustified.” Moody’s said lagging tax collection and “implementation risks” would make it more difficult to reach budget-cutting targets in a 110 billion-euro ($154 billion) bailout. “The risk has materially increased of a default event,” said Sarah Carlson, Moody’s senior analyst for Greece, said in a telephone interview today from London. “Our central view is that the Greek government will achieve its objectives and it won’t need to impose losses on credits, but there are material risks to that outcome.”Credit-default swaps on Greece jumped 50 basis points to a record 1,036, according to CMA. The yield on 10-year Greek notes rose 11 basis points to 12.36 percent, the most in the euro region. The premium that investors demand to hold the bonds instead of benchmark German bunds widened 9 basis points to 907 basis points, the highest since Jan. 10. The outcome of EU summits this month won’t significantly affect Greece’s long-term prospects, Carlson said. “We did consider a range of likely outcomes, but really our concern is much more long term,” she said. “Whatever decisions are taken at the end of the month are not something that would change our long-term outlook.” The Moody’s decision “was hardly a surprise, but it did remind the market of Greece’s deteriorating finances, the high interest-rate burden they face along with the roll-over risk and potential need for restructuring,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “Greece at this point in time is in considerable trouble.”
Oil Rises to 29-Month High; Citigroup Sees Brent 'Fear Premium'. Oil rose to a 29-month high in New York as escalating violence in Libya bolstered concern that supply disruptions may spread through the Middle East. Crude climbed 1 percent after fighting between Libyan rebels and troops loyal to Muammar Qaddafi intensified. Hedge funds raised purchases of futures to a record for a second week on speculation unrest will cut output further. Citigroup Inc. increased its Brent oil price estimate, saying the threat of more disruptions supports a “fear premium.” “The focus remains on Libya and on fears of a contagion effect that will impact other oil-exporting countries in the Middle East,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Libya appears to be spiraling into civil war, which will keep prices rising.” Crude oil for April delivery rose $1.02 to $105.44 a barrel on the New York Mercantile Exchange, the highest closing price since Sept. 26, 2008. The contract is up 29 percent from a year ago. Brent crude oil for April settlement slipped 79 cents, or 0.7 percent, to $115.18 a barrel on the London-based ICE Futures Europe exchange.
Oil at $110 May Trigger Pain U.S. CEOs Weathered at $100. A recovering economy helped U.S. chief executive officers weather crude’s surge past the $100 mark. At $110 a barrel, the pain would start to kick in. As oil traded at 29-month highs last week on concern that violence in Libya would further crimp Middle Eastern supplies, CEOs said they were waiting to see how much the price rises, and for how long. “Any time something like oil goes up dramatically overnight, it becomes very hard to adequately plan,” said Samuel Allen, 57, chairman and CEO of Deere & Co. (DE), the world’s largest maker of agricultural equipment. “It has caused us to be more careful or cautious in watching the outlook, but we have still moved forward with all our plans.” Corporate assumptions would have to start changing when oil reaches $110 a barrel, according to economists such as Chris Low of FTN Financial in New York.
Evans Says Hurdle 'High' for Fed to Alter Bond Purchase Plan. Chicago Federal Reserve Bank President Charles Evans said the hurdle for altering the Fed’s current $600 billion Treasury purchase plan is “high,” and that a tapering of the purchases is unlikely. “It looks more and more to me like $600 billion is a good number,” Evans, 53, said today in an interview today with CNBC. “I continue to think the hurdle is pretty high” for changing the program and “we’re going to continue to need short-term interest rates to be low for an extended period of time.” Rising oil prices are a “headwind for the real economy” and yet shouldn’t lead to higher underlying inflation, said Evans, who votes on the Federal Open Market Committee this year. Treasury markets are “so deep and liquid that there doesn’t seem to be a need” to taper the purchases, Evans said. “I wouldn’t be surprised that if we decide to end it, we just end it,” he said, referring to the purchase plan.
Goldman(GS) Leads M&A List Spurred by Commodities Demand in BRICs. The merger boom that started in 2010 isn’t looking like any of the past three. The takeover binge of the 1980s was fueled by Michael Milken’s junk bonds; the late- 1990s wave of Internet and telecom deals, by inflated stock prices; and the private-equity frenzy that produced a record year for deals in 2007, by leveraged loans. The more recent surge comes from the expanding BRIC economies -- Brazil, Russia, India and China -- and beyond. Deals are rising among the companies that supply raw materials to these countries. Worldwide deals in energy, power and basic materials made up about a third of the merger and acquisition market in 2010, compared with about 20 percent in the previous decade, according to data compiled by Bloomberg. Companies with headquarters in emerging markets played a role in more than a third of 2010 takeovers, about twice their historical share.
Rajaratnam Trial May Tarnish Goldman(GS), McKinsey, Spark Lawsuits. Goldman Sachs Group Inc. (GS), McKinsey & Co. and Intel Corp. (INTC) are among the companies that may be sued or suffer damage to their reputations after witnesses at the trial of Galleon Group LLC co-founder Raj Rajaratnam describe insider leaks. Rajaratnam, 52, goes on trial tomorrow for trading on tips gleaned from sources inside these and other companies, including Morgan Stanley, International Business Machines Corp. (IBM) and Moody’s Investors Service Inc. If the billionaire native of Sri Lanka is convicted by a Manhattan jury, U.S. prosecutors may seek to jail him for more than 10 years.
Teacher Security Blanket May Shred as Governors Hit 'Ignorance Factories'. U.S. public-school teachers are facing the biggest challenge to their job security in more than half a century as politicians target seniority rules that make the last hired the first fired when jobs are cut. New Jersey Governor Chris Christie, a Republican, Los Angeles Mayor Antonio Villaraigosa, a Democrat, and New York Mayor Michael Bloomberg, an independent, are among officials pushing for changes in laws in coming months to let them fire underperforming teachers. As budget cuts threaten the jobs of thousands of school employees, officials are demanding the right to keep the most talented, even if they’re the least experienced. The proposed changes may undercut the power of teachers’ unions. They intensify the debate on how to judge instructor’s effectiveness as U.S. students lag behind international peers.
The US dollar may reverse declines that have seen the currency drop 3.5% this year after bets on its depreciation against its major counterparts climbed to the most on record, according to UBS AG. Bets on the dollar weakening, so-called net shorts, surged in the week ended March 1 to the highest since the CFTC began publishing the data in 2003. "Investors should prepare for possible unwinding of these negative bets against the dollar, which are extreme at the moment."
Fed's Fisher Says He May Vote to Curtail Asset Purchase Program. Federal Reserve Bank of Dallas President Richard W. Fisher said he might vote to cut short the central bank’s program of large-scale asset purchases if he believed it to be “counterproductive.” “I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it,” Fisher said in the text of a speech today in Washington. Fisher repeated that he would vote against extending or enlarging the purchases “barring some frightful development.” “The liquidity tanks are full, if not brimming over,” Fisher said at the Institute of International Bankers Annual Washington Conference. “The Fed has done its job. What is needed now is for business to be incentivized to commit that liquidity to creating American jobs. This is the task of the fiscal authorities, not the Federal Reserve.” The program “might well retard job creation,” Fisher said, if it leads to rising inflation expectations or a perception that the Fed was enabling the “fiscal irresponsibility” of Congress. This fiscal year’s budget deficit is projected to reach $1.5 trillion, according to a Congressional Budget Office estimate released Jan. 26. The deficit was $1.29 trillion last year after a record $1.42 trillion in 2009. “The U.S. economy is afflicted with the pathology of structural deficits,” Fisher said. “This leaves the nation poorly positioned to weather the next recession or shock to come our way. I devoutly hope our next downturn won’t come for quite some time, but it surely will come eventually.”
Western Digital(WDC) Agrees to Buy Hitachi Unit for $4.3 Billion. Western Digital Corp. (WDC), the largest maker of computer hard-disk drives, agreed to buy a rival unit of Hitachi Ltd. (6501) for about $4.3 billion in cash and stock to reduce costs as the industry shrinks amid waning demand. Western Digital will pay $3.5 billion in cash and give Hitachi 25 million of its shares, the companies said in a statement today. Hitachi will own about 10 percent of Irvine, California-based Western Digital after the deal is completed and will gain two seats on the company’s board.
Wall Street Journal:
Gadhafi Forces Strike Rebels; No-Fly Plan Discussed. Forces loyal to Col. Moammar Gadhafi launched airstrikes on a rebel-held town Monday to check the rebels' advance west toward the capital, as the U.S. and allies said they were discussing military options.
Bahrain Protesters Defy Police. Hundreds of hard-line Bahraini opposition protesters gathered in Manama's financial center on Monday, defying a police order to disperse, in a new escalation of tensions between antigovernment demonstrators and the ruling Al-Khalifa family. A small number of protesters pitched tents Sunday night at the base of two skyscrapers in the heart of the financial center, but were warned by police to move on, demonstrators said. Amid fears of a crackdown, the number of protesters began to swell, with hundreds calling for the fall of the ruling family and choking traffic at one of the capital's busiest intersections.
Airlines to Load On More Fees. After Checked Bags, Carriers Seek to Charge for Early Boarding, Fancier Foods and Reclining Seats.
"China is on the verge of exporting inflation globally," according to Andrew Milligan, head of global strategy at Standard Life Investments. Chinese producer prices for light industry, including toys and home appliances, rose faster in December than they did when the inflation rate peaked in July 2008. Prices were 4.8% higher than a year ago. Rising wages are largely responsible for the pickup in inflation, Milligan wrote today. Pay for rural migrant workers rose last year by about 15%, exceeding a 10% increase in average urban wages, he wrote. Land, energy and environmental costs are contributing to price increases as well, he said. Sale prices for land advanced 14.8% in the fourth quarter from a year earlier after surging more than 20% in each of the first three quarters. "Long-term inflation trends are a concern," Milligan wrote. "The authorities are behind the curve, and have more to do."
Ciena(CIEN) Shares Drop After Disappointing Forecast. Ciena Corp. reported a wider net loss for its fiscal first quarter Monday despite a sizable jump in revenue, which came in even higher than analysts expected. However, Ciena’s (CIEN25.42, -3.39, -11.77%) shares slumped more than 9% by midmorning after the maker of optical-networking gear issued a lower-than-expected revenue forecast for the current quarter.
CNBC.com:
Hedge Fund Titans Struggling to Outrun S&P. Some of the best-known hedge funds have struggled this year to outperform the stock market, with many turning in 3 percent or 4 percent year-to-date returns during a period where the S&P 500 was up nearly 6 percent.
Will California Fall into 'The Black Hole'?California only has a short amount of time to fix its troubled economy,with an $84 billion budget and $24 billion deficit, or else it will deteriorate to the point of no return, Sean Egan, founding partner and president of Egan-Jones Rating Company, told CNBC on Monday.
Gaddafi 'Unlikely' to Leave Libya Despite Report: US. Libyan leader Muammar Gaddafi is "unlikely" to be seeking safe passage out of his war-torn country despite a BBC report that he was preparing to leave, US officials told NBC News.
Obama to Restart Guantanamo Trials. The Associated Press has learned that President Barack Obama is approving the resumption of military trials for detainees at the U.S. prison at Guantanamo Bay, Cuba, ending a two-year ban. A senior military official says Obama will issue an executive order Monday. Defense Secretary Robert Gates will rescind his January 2009 ban against bringing new cases against the terror suspects at the detention facility. Obama vowed when he took office to close the detention facility at Guantanamo, but officials have recently acknowledged that closure is not likely because of questions about where terror suspects would be held.
Charlotte Observer:
Analysts Have Hard Questions for Bank of America(BAC). Investors will be looking for answers about lingering mortgage losses and future growth strategies at Bank of America’s investor conference Tuesday, but they shouldn’t expect any big surprises, analysts say.
Rasmussen Reports:
54% Favor Repeal of Health Care Bill. The latest Rasmussen Reports national telephone survey of Likely Voters shows that 54% favor repeal of the law, including 44% who Strongly Favor repeal. Thirty-nine percent (39%) oppose repeal of the law, including 31% who are Strongly Opposed.
Reuters:
Morgan Stanley(MS) Cancels All Libya Oil Trade. Wall Street bank Morgan Stanley has stopped trading crude and refined products with Libya to comply with U.S. sanctions against the Gaddafi government, a source familiar with the firm's transactions said. All contracts were cancelled over the past week "due to the OFAC," he said, referring to the U.S. Office of Foreign Assets Control, which controls trade sanctions.
Rising Food Prices Could Force US Eatery Overhaul. Record-high food prices could be the tipping point this year for U.S. restaurants already struggling with high debt loads and tight-fisted consumers. The economic downturn and drop in consumer spending has sent a handful of restaurant chains -- such as Uno Chicago Grill pizza, Fuddruckers and Charlie Brown's Steakhouse -- into bankruptcy court during the past year. And 2011 is not likely to be much better, experts say.
Financial Times:
The European Banking Authority plans to introduce a "near-fail" category into the stress-test process as part of a more robust mechanism for compelling weaker banks to recapitalize.
China Reserve Ratio May Increase This Week. CHINA'S central bank may raise bank reserve requirement ratio as early as this week as it continues to step up its fight against inflation because China has prioritized keeping prices stable in this year's government agenda, analysts said yesterday. In his government work report delivered to the annual session of the National People's Congress over the weekend, Premier Wen Jiabao reaffirmed the central government's determination to battle inflation this year. "It's rare to see 15 mentions of pricing in the government's prudent work report," said Lu Zhengwei, Industrial Bank's senior economist said yesterday. "As short-term policy follow-up, one more reserve requirement increase is likely to come between March 11 and March 20," Lu said.
Qaddafi Escalates War Against Rebels as Libyan Conflict Deepens. Libyan troops loyal to Muammar Qaddafi used artillery and helicopter gunships in their effort to block the rebels’ advance west from the oil hub of Ras Lanuf toward the leader’s hometown of Sirte. Rebel fighters battled reinforced pro-Qaddafi troops yesterday around Bin Jawad, 110 miles (160 kilometers) east of Sirte, as ambulances rushed the wounded to the hospital in rebel-controlled Ras Lanuf, according to an Associated Press reporter on the scene. At least six people were killed in the fighting, and a French journalist for France 24 TV was among 60 wounded, AP said. Clashes during the past two days have become more deadly as the rebels moved along the Libyan coast toward Tripoli and government troops escalated their use of force in attempting to retake the rebel-held cities of Misurata, about 90 miles east of the capital, and Zawiyah to the west.
Saudi Council of Islamic Scholars Warns Against Demonstrations. Saudi Arabia’s Council of Senior Islamic Scholars warned against protests in the kingdom, the Saudi Press Agency said today. The council condemned demonstrations in the kingdom as forbidden, the Riyadh-based Saudi Press Agency said, citing a statement from the scholars. Reforms cannot be realized through protests and “means that cause division,” the news service said cited the council as saying. Public demonstrations are usually prohibited in Saudi Arabia, the world’s biggest oil exporter and an absolute monarchy ruled by six kings since it was established in 1932. Websites have called for a nationwide “Day of Rage” on March 11 and March 20 in Saudi Arabia, according to Human Rights Watch. Saudi Arabia’s Interior Ministry said yesterday that demonstrations, marches and sit-ins are “strictly” prohibited under the kingdom’s laws, according to the Saudi Press Agency. Protests “contradict” Islam and the values of society, the Riyadh-based news service cited the official as saying. They harm public interest, infringe on the rights of others, spread “chaos” and lead to bloodshed, the official said. The Senior Council of Scholars also called on protesters to resort to “counseling” in accordance with Islam, the news service said. Abdulaziz Bin Abdullah Al al-Sheikh, the Grand Mufti of Saudi Arabia, heads the council. Saudi security forces detained 22 Shiite Muslims on March 3 in the eastern city of al-Qatif during a demonstration demanding the release of Shiite prisoners, human rights activist Jaafar al-Shayeb said today. “They are all detained at the police station in Dhahran,” al-Shayeb said in a phone interview today. The Shiites have been holding protests on Thursdays and Fridays for the past three weeks, demanding the release of prisoners held without trial, he said. Shiite Muslims in the eastern province of Saudi Arabia held two demonstrations on March 3 to call for the release of prisoners. About 100 people staged the first protest in the Shiite Muslim village of Awwamiya in the kingdom’s Eastern Province. A similar number of people later demonstrated in the city of al-Qatif under strong police presence. A third demonstration, demanding the release of Sheikh Tawfiq al-Amir, was held March 4 in al-Hofuf in the Eastern Province, according to Tawfiq al-Saif, a prominent Shiite activist from the eastern region, and a second activist, who declined to be identified for security reasons. Al-Amir, a Shiite Muslim cleric, was arrested on Feb. 27 after he called for a constitutional monarchy and equal rights, Human Rights Watch said in a statement on its website. Awwamiya, a village north of Qatif on the kingdom’s Persian Gulf, was the scene of much larger demonstrations in 2009 after police sought to arrest Shiite cleric Nimr al-Nimr, who had said in a sermon that Saudi Shiites may be able to seek a state of their own in the future.
Options traders are betting more than ever that crude oil is heading to $200 a barrel as some websites call for a "Day of Rage" in Saudi Arabia and anti-government protests spread in the Middle East and North Africa. Open interest for "call" options to buy New York crude for June delivery at $200 a barrel have escalated to the highest since the options started trading in July 2009 amid worsening civil unrest in Libya and rare demonstrations in Saudi Arabia.
Oil Rises to 29-Month High on Mideast Supply Risk, U.S. Economy Outlook. Oil surged to the highest in 29 months in New York as unrest in Libya renewed concern supply disruptions may spread while signs of U.S. economic recovery stoked speculation fuel demand will rise. Futures gained as much as 1.4 percent after fighting between Libyan rebels and troops loyal to Muammar Qaddafi intensified. Citigroup Inc. raised its Brent crude estimate as the threat of output disruptions supports a “fear premium.” Prices closed 6.7 percent higher last week after a U.S. government report showed the nation’s jobless rate fell in February to the lowest since April 2009. Crude for April delivery increased as much as $1.50 to $105.92 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday price since Sept. 29, 2008. The contract was at $105.73 at 10:33 a.m. Singapore time. Futures have risen 29 percent from a year earlier.
Wheat Planting Falls to Four-Year Low in Russia Amid Export Ban. Russia’s ban on grain exports means the country’s farmers will plant the fewest wheat fields in four years, another sign that global prices will keep rising. Wheat plantings in the country, once the second-biggest exporter, will drop 2.3 percent to 64.2 million acres for this year’s crop, according to the median in a Bloomberg survey of as many as 19 producers, traders and analysts. Farmers can’t plant more because the ban imposed after last summer’s drought is limiting farm income. Diesel was 30 percent higher than a year earlier in January and OAO Acron, Russia’s third-biggest nitrogen fertilizer producer, raised some prices by more than 12 percent for the first half. The 84 million-metric-ton grain harvest anticipated in the survey is 1 million tons below what the government says it needs to consider lifting the seven-month-old export ban. The absence of Russian supplies comes as the U.S. says global grain inventories will drop 13 percent, riots topple leaders in Tunisia and Egypt and governments hoard food. Russian policies may mean no reversal in the 94 percent rally that began in June after drought and flooding from Canada to Russia ruined crops. The surge contributed to what the United Nations says were record-high global food prices last month. The S&P GSCI Index of 24 commodities rose 47 percent since June.
Inflation Endangering China 'Dream' Spurs Wen Pledge on Prices. Premier Wen Jiabao’s pledge to stem inflation in China underscored forecasts for more interest-rate increases as a jump in food and housing prices risks sparking public anger. Wen, in his opening speech to the annual National People’s Congress conclave in Beijing two days ago, said that reining in consumer and property prices is the nation’s top priority. That will be welcome to fruit vendor Song Zhiqiang, 56, of the southwestern city of Guiyang, who says: “My rent’s doubled in a year and my family’s food budget has increased to 3,000 yuan,” or $456, from 1,200 yuan. Policy makers’ 4 percent inflation target for this year was exceeded by almost a percentage point in February, according to the median estimate in a Bloomberg News survey. Without higher deposit rates to encourage saving, and a stronger currency to ease import costs, the risk is that price pressures will keep escalating in coming months. “The skew of risks is very much for an extended period of uncontained inflation,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. “The danger is that inflation spikes as high as 10 percent in the third quarter, causing households tremendous pain and fuelling widespread social discontent.” Additional increases in benchmark interest rates and banks’ reserve requirements may help to bring price pressures under control, Maguire said. Nomura Holdings Inc. forecasts 0.75 percentage point of interest-rate increases by year-end, along with gains in banks’ reserve ratios. With real-estate values climbing in the aftermath of the record credit boom unleashed during the global financial crisis, slums have emerged in cities including Beijing and Shanghai as migrant workers and cash-strapped urban youth seek an affordable place to live. “My dream of owning a house is drifting further away because home prices have increased by a huge margin, outpacing my salary gains,” said Tao Jianyi, 32, an electrical engineer in Beijing. “The government has a lot to do to make homes affordable and within the reach of ordinary income earners.” An online call for protests in China, inspired by uprisings in the Middle East, has highlighted the risk of social unrest. The government has deployed hundreds of police in Beijing and Shanghai after an open letter called for “jasmine” rallies, named after the January uprising in Tunisia that overthrew President Zine El Abidine Ben Ali. Across the country, consumer prices rose an annual 4.9 percent in January as food costs jumped, while in Beijing, new home prices climbed 6.8 percent. In February, inflation was 4.8 percent, according to the median forecast in a survey of 22 economists. That number is due to be announced this week. “People in China are very unhappy,” said Huang Yiping, an economics professor at Peking University in Beijing. “Inflation driven by food prices is very destabilizing for the economy and society because it’s reducing everybody’s purchasing power and mostly it damages the welfare of low-income households.”
Euro Rally Masking Political Discord as EU Leaders Battle Debt. The euro’s two-month rally against the dollar is running into renewed rifts over Europe’s sovereign debt crisis just as optimism about the U.S. economy increases. Bolstered by the prospect of higher European Central Bank interest rates as soon as next month, the euro has climbed almost 9 percent against the dollar from this year’s low. Bets by futures traders on more strength are at levels that indicated reversals in the past. The euro has gained about half as much versus a group of nine developed-nation peers including the pound, franc and Swedish krona, Bloomberg Correlated-Weighted Currency Indexes show.
Egypt Yields Hit Two-Year High as Bourse Closure, Probe Sends GDRs Sinking. Egypt’s borrowing costs are rising to the highest in more than two years and stocks listed overseas are tumbling as the Cairo exchange’s five-week shutdown and new rules on shareholder disclosure keep investors away. The Ministry of Finance sold 3 billion pounds ($509 million) of bonds yesterday, 1.5 billion pounds less than planned, as yields on 266-day notes climbed 31 basis points from the last auction to 12.47 percent, data compiled by Bloomberg show. The benchmark EGX 30 Index (EGX30) plunged 16 percent in its last two trading sessions before the closure. Investors have protested outside the bourse in Cairo to demand that trades in the final days be canceled and that shares be suspended in companies with links to the former Mubarak regime. Egypt risks becoming “a pariah of an investment destination,” said Jeff Chowdhry, the London-based head of emerging-market equities at F&C, which oversees about $163 billion worldwide. “If they value foreign investment in their stock market, they should get that market open immediately and take off any restrictions in terms of having too cumbersome administrative requirements.”
Copper may fall in the next month amid a "soft patch" that has resulted in ample stockpiles and a balanced or small surplus of supplies over demand, Macquarie Group Ltd. said. The price may fall to the "low $9,000s" a metric ton.
JPMorgan(JPM) Ranks No.1 in Bond Fees as Low Rates Spur Refinancing. Spurred by declining interest rates, banks in 2010 capped off the biggest two-year bond sale binge on record. Corporate bond sales of $2.8 trillion were the second largest on record behind 2009’s $3.1 trillion. Corporate and sovereign bond deals around the world generated a total of $14.9 billion in fees for bankers, down from $15.5 billion in 2009, according to data compiled for Bloomberg Markets magazine’s seventh annual ranking of the best- paid investment banks.
Wall Street Journal:
Bahrain Opposition Steps Up Pressure. Tens of thousands of Bahraini opposition demonstrators encircled a sprawling government compound Sunday in a gathering timed to coincide with a cabinet meeting, amid growing pressure on the ruling family to accept sweeping reforms. In an escalation of a strategy that has seen opposition demonstrators target key government ministries, protesters early on Sunday took up positions at each of the government complex's four gates and repeated calls for the fall of the government. Behind the gates, hundreds of riot police stood guard, while police helicopters circled overhead.
U.S. Wavers on 'Regime Change'. After weeks of internal debate on how to respond to uprisings in the Arab world, the Obama administration is settling on a Middle East strategy: help keep longtime allies who are willing to reform in power, even if that means the full democratic demands of their newly emboldened citizens might have to wait. Instead of pushing for immediate regime change—as it did to varying degrees in Egypt and now Libya—the U.S. is urging protesters from Bahrain to Morocco to work with existing rulers toward what some officials and diplomats are now calling "regime alteration." The approach has emerged amid furious lobbying of the administration by Arab governments, who were alarmed that President Barack Obama had abandoned Egyptian President Hosni Mubarak and worried that, if the U.S. did the same to the beleaguered king of Bahrain, a chain of revolts could sweep them from power, too, and further upend the region's stability.
U.S. May Reject Off-Shore Drilling Permits Due to Ruling. The Obama administration says it may have to reject seven permits for deep-water drilling that have become the subject of high-profile legal and political battles if a federal judge in New Orleans forces the government to make a quick decision on the applications.
Office Rents Dip On Park Avenue. Thanks to the economic downturn, businesses looking for Manhattan office space are finding something that many thought had gone the way of the $1 slice of pizza: a high-quality Park Avenue address for way under $100 a square foot.
Wisconsin Democrats May Return Soon. Playing a game of political chicken, Democratic senators who fled Wisconsin to stymie restrictions on public-employee unions said Sunday they planned to come back from exile soon, betting that even though their return will allow the bill to pass, the curbs are so unpopular they'll taint the state's Republican governor and legislators.
Fed Unlikely to Remove Its Economic Stimulus Just Yet. Federal Reserve officials have grown more confident that a self-sustaining economic recovery is taking root in the U.S., but they want to see more evidence before they seriously consider how and when to pull back the enormous amounts of stimulus they pumped into the financial system.
Shale Lifts Prospects in Ohio. Struggling Region Begins to Cash In as Oil Firms Rush to Buy Drilling Rights. An oil-rich underground layer of rock, called the Utica Shale, has sparked a leasing frenzy and the prospect of a new flow of cash and jobs to a development-starved corner of the Rust Belt.
Bloomberg Businessweek:
Hedge Fund Bull Bets Hit Four-Year High After Trailing S&P 500. As the rally that drove the S&P 500 up 95 percent begins its third year, more hedge funds are speculating stocks will advance than at any time since 2007, according to data compiled by TrimTabs Investment Research and BarclayHedge Ltd. While money managers playing catch-up with the market’s gains have helped the benchmark index advance 5.1 percent in 2011, it also may deplete the pool of new buyers. Hedge funds, largely unregulated investment vehicles that aim to make money whether markets rise or fall, took advantage of record-low interest rates to increase borrowings in January to the highest level since October 2007, according to data compiled by New York-based NYSE Euronext. Margin debt peaked in March 2000 and July 2007, before the S&P 500 began a 57 percent drop that bottomed at 676.53 on March 9, 2009. A gauge compiled by TrimTabs and BarclayHedge measuring how heavily hedge funds are invested in stocks rose to 33 percent in January, the last month data are available, from the 29 percent average since 2000. The measure peaked at 66 percent in August 2006 and bottomed at 9.5 percent in June 2007, the data show. Shares borrowed and sold to profit from declines dropped four straight months to 3.3 percent of all stock at the end of January, according to data compiled by NYSE Euronext.
China Adding to $1 Trillion of Treasuries Limits Rise in Yields. Investors outside the U.S. have boosted their holdings of longer-maturity Treasuries to the highest level since the credit markets froze in 2008, helping curb rising yields amid concern inflation is accelerating. International buyers held 90 percent of their $4.44 trillion of U.S. government debt in notes and bonds as of December, the same as in September 2008 when Lehman Brothers Holdings Inc. collapsed.
Armies of Expensive Lawyers, Replaced by Cheaper Software. Thanks to advances in artificial intelligence, “e-discovery” software can analyze documents in a fraction of the time for a fraction of the cost. In January, for example, Blackstone Discovery of Palo Alto, Calif., helped analyze 1.5 million documents for less than $100,000.
CNNMoney:
Traders 'Short' Dollar as Currency Loses Attraction. Hedge funds and forex dealers are betting record amounts against the dollar, reflecting a growing belief that the US currency has lost its haven appeal and that eurozone interest rates will soon rise. As the crisis in the Middle East has worsened, the latest exchange data show that traders are selling "short" the currency. The big US fiscal deficit and concerns about the effect of rising oil prices have been blamed by some for the dollar's slide. Figures from the Chicago Mercantile Exchange, which are often used as a proxy for hedge fund activity, showed that short dollar positions surged from 200,564 contracts in the week ending February 22 to 281,088 on March 1. This meant that the value of bets against the dollar on the CME rose $11.5bn in the week to March 1 to $39bn, $3bn more than the previous record of $36bn in 2007. In contrast, speculators have added to their euro holdings amid expectations that the European Central Bank will soon raise interest rates to head off rising inflation.
President Obama's "Half-Way" Math On Deficit Cuts Doesn't Even Come Close. President Obama claims he is meeting Republicans "half-way" on Republican plans to reduce the deficit by $61 billion. "Half-way" is $11 billion ($10.5 billion to be more precise). My math strongly suggests the president needs math lessons.
Toward a Fascist Pakistan. This post by Ms. MacDonald gives you some sense of how much recent events in Pakistan have shaken those who love it. It was written after Pakistan's Minister for Minorities, Shahbaz Bhatti, was assassinated near his mother's home. Mr. Bhatti was killed precisely because he stood in opposition to lunacy.
Nancy Morgan: "Was The Economic Crisis Manufactured?" Nancy Morgan at American Thinker has a different take on the timing of our economic crisis, its cause, and its intended outcome. Was this "a very high stakes poker game with the prize being the White House?", one reader asked. Consider this:
Politico:
Mitch McConnell: President Obama Not Doing His Part. The Republican leader of the Senate said Sunday that President Barack Obama is not serious about tackling structural reforms to get spending and debt under control. While Minority Leader Mitch McConnell (R-Ky.) said he’s had plenty of recent talks with Obama and Vice President Joe Biden, he doesn’t believe the White House is willing to overhaul entitlements like Social Security and Medicaid.
Libyan rebels captured the oil port town of Ras Lanouf from forces loyal to Colonel Muammar Qaddafi.
Reuters:
White House Considers Tapping Oil Reserves. White House Chief of Staff Bill Daley said on Sunday the Obama administration is considering tapping into the U.S. strategic oil reserve as one way to help ease soaring oil prices. Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. ... All matters have to be on the table." On Wednesday, U.S. Energy Secretary Steven Chu ruled out releasing oil from the reserve, saying ramped up oil production in Saudi Arabia should lower the crude price.
Hedge Fund Indices' Accuracy in Question. The Edhec-Risk Institute, an arm of France-based Edhec Business School, stirred the pot recently when it stated that “the performance of multi-strategy indices whose portfolios included illiquid [or less liquid] strategies was extraordinarily overstated after mid-2008”.
Quant Shops Innovate to Survive. This trend is already starting to drive greater differentiation between dozens of quant shops in the US, many of which were seen to have been dragged down by strikingly similar momentum-oriented investment strategies that failed investors in the crash, notes Stephen Miles, a senior investment consultant at Towers Watson in London.
HSBC's Loss Alert on US Foreclosures. HSBC has warned that the move by regulators to halt its home repossessions in the US may lead to it suffering larger losses on the properties.
HSBC Reveals Plans to Quit London for Hong Kong. HSBC has told its biggest shareholders that it is preparing to quit London in a shock move that the bank has revealed to key investors is now "more likely than not".
BBC:
Spain Town Reintroduces Peseta to Boost Economy. A small town in northern Spain has decided to reintroduce the old Spanish currency - the peseta - alongside the euro to give the local economy a lift.
European governments should ease the bailout terms for Greece and Ireland as they discuss ways to end the debt crisis, European Union Economic and Monetary Affairs Commissioner Olli Rehn said. While German Chancellor Angela Merkel is skeptical about easing the bailout conditions, Rehn said there's a risk that both countries are being overstretched by too-strict loan conditions.
O Estado de S. Paulo:
Itau Unibanco Holding SA plans to cut its forecast for Brazil's economic growth in 2011 to about 3.5% from 4%, citing an interview with Ilan Goldfajn, the bank's chief economist.
The Chosunilbo:
Mynamar 'Developing Scud Missiles with North Korean Assistance'. Myanmar is developing its own Scud-type missiles with North Korean assistance, according to Japanese daily Sankei Shimbun. The two countries have been maintaining close military ties since 2008 as the relationship between the two has grown stronger over the years. Sankei Shimbun reported Sunday that a munitions factory located near the small Myanmar town of Minhla is in fact a workplace for North Korean missile experts. Experts fear the development could spark a regional arms race, prompting neighboring countries such as Thailand to develop or procure their own missile arsenal.
Yonhap News:
North Korea has deployed tanks around its leader Kim Jong Il's houses in Pyongyang to ward off a possible revolt amid continued unrest in the Middle East, citing a senior official of the National Intelligence Service.
Beijing Daily:
China should guard against individuals trying to create social disruptions similar to those in the Middle East, the Beijing Daily said today in an editorial. There are people who use the Internet to incite illegal gatherings and create "street politics," the newspaper said.
South China Morning Post:
China's four biggest banks expect to lend almost $457 billion this year, about the same as last year, citing bankers it didn't identify.
arabianBusiness.com:
Saudi CDS Could Feel Impact of MENA Unrest, Credit Agricole Says. Credit Agricole CIB said continuing unrest across the MENA region will keep Saudi Arabian markets volatile. “There is no doubt that uncertainty about the wider Middle East will continue to impact Saudi Arabia’s CDS [credit default swaps] or could at some point impact SAR forward rates, should uncertainty escalate further,” Agricole said in a note. “The strength of events in Tunisia, Egypt, Bahrain, Libya as well as Yemen has led most to expect the worst to come for the rest. Differentiation and re-classification of risk is warranted, but it takes time for the dust to settle. Regional stock markets will continue to reflect the higher perceived risks.” The market shifts in Saudi come as local markets are beginning to price a shift of contagion from North Africa to GCC economies, namely Bahrain and Saudi. “The possibility of contagion spreading to Saudi Arabia remains low although markets are pricing a higher risk premium. Bahrain's future is a leading indicator but there is not enough clarity about short-term political outcomes,” Agricole said. As unrest continues, there will likely be more pressure on Saudi’s markets. “Markets will continue to price additional risk premiums despite the arguments put forward about Saudi Arabia’s fiscal and political capacity to weather the regional crisis,” the note said. “The CDS spreads have widened recently. However, they remain far below the level they reached during the Dubai crisis. The spread could remain large or widen further in the short term.” The analysts also described the challenges posed to emerging markets in the region, by both inflation and MENA turmoil. “It remains unclear when the situation could stabilise on either front, and it may be worth beginning to position for bad news,” they said.
IBNLive:
Egypt: Coptic Christians Protest Church Burning. Cairo: Hundreds of Coptic Christians gathered outside the state television and radio building in Cairo on Sunday to protest against the burning of a church following religious clashes south of the capital. Protesters, some carrying wooden crosses and Egyptian flags, demanded that the armed forces intervene to protect Coptic communities and churches. The demonstration comes two days after a church was torched following clashes between Muslims and Christians in the town of Sol, 90 km south of Cairo. Protesters demanded that those responsible for the incident be brought to justice. Clashes in Sol were triggered when residents discovered that a Christian man from the town was having a relationship with a Muslim woman from a Cairo suburb, security sources said. The fathers of the two families were killed by gunfire during the clashes on Friday. After the men's funerals later that day, members of the Muslim community set fire to the Coptic Martyrs' Church in Sol. Tension has been especially high since the bombing of a Coptic church in Alexandria on New Year's Eve, which killed more than 20 people. Authorities blamed Al-Qaeda for the bombing.
Weekend Recommendations Barron's:
Made positive comments on (MET).
Made negative comments on (JOE).
Citigroup:
Reiterated Buy on (AEO), target $20.
Night Trading
Asian indices are -1.50% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 107.50 +.5 basis point.
Asia Pacific Sovereign CDS Index 118.75 +.75 basis point.
Consumer Credit for January is estimated at $3.4B versus $6.09B in December.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Lockhart speaking, Fed's Fisher speaking, Cowen Healthcare Conference, Stifel Nicolaus Consumer Conference, Deutsche Bank Media/Telecom Conference, CSFB Media/Communications Convergence Conference, (DDR) investor conference, (BEAV) investor meeting and the (PEG) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by transportation and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week mixed as growing Mideast unrest, rising energy prices, emerging market inflation worries and more shorting offset earnings optimism, fund inflows, buyout speculation and mostly positive economic data. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.
