North American Investment Grade CDS Index 95.23 -1.10%
European Financial Sector CDS Index 87.87 -5.12%
Western Europe Sovereign Debt CDS Index 181.75 bps +2.54%
Emerging Market CDS Index 204.70 -1.13%
2-Year Swap Spread 17.0 unch.
TED Spread 22.0 unch.
Economic Gauges:
3-Month T-Bill Yield .05% unch.
Yield Curve 270.0 -2 bps
China Import Iron Ore Spot $178.80/Metric Tonne -1.16%
Citi US Economic Surprise Index +19.90 -.3 point
10-Year TIPS Spread 2.63% +3 bps
Overseas Futures:
Nikkei Futures: Indicating +49 open in Japan
DAX Futures: Indicating +43 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical, Retail and Tech sector longs
Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session high despite emerging markets inflation worries, rising energy prices, Mideast unrest, earnings jitters and Japan concerns. On the positive side, Energy, Oil Service, Ag, Steel, Paper, Hospital, HMO and Homebuilding shares are especially strong, rising more than 1.0%. Cyclicals are outperforming. The 10-year yield is falling -2 bps to 3.35%. Copper is rising +1.0%. The Italy sovereign cds is falling -4.17% to 151.80 bps, the Russia sovereign cds is declining -4.08% to 132.93 bps and the US sovereign cds is falling -3.2% to 47.75 bps. Tech sector leader (AAPL) is trading better technically. On the negative side, Education, Gaming, Biotech, I-Banking, Oil Tanker and Alt Energy shares are under mild pressure, falling more than .5%. Tech and financial shares are underperforming. Small-caps are also underperforming. Oil is rising +.4% and lumber is declining -.89%. The US price for a gallon of gas is rising +.01/gallon today to $3.84/gallon. It is up .72/gallon in 63 days. The UK sovereign cds is gaining +1.86% to 59.13 bps, the Greece sovereign cds is gaining +2.69% to 1,332.36 bps and the Emerging Markets Sovereign CDS Index is gaining +1.47% to 161.11 bps. The Greece sovereign cds is making another new record high. The Bloomberg Autos Anchored Index is surging another +4.8% today and is making a new record high, exceeding its prior peak on May 22, 2009, which is also a big negative. The Shanghai Composite finished at session lows last night, falling -1.9%. The quality of today's bounce is lacking on poor volume, leadership and breadth. The S&P 500 is still slightly below its 50-day moving average. Given the obvious headwinds, investor complacency remains fairly elevated as evidenced by the extreme speculative action in Chinese internet stocks and low investor angst readings seen in various market gauges. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less eurozone debt angst, bargain-hunting and more economic optimism.
Greek Two-Year Yields Reach Record as Demand Wanes at Auction; Bunds Slide. Greek note yields reached euro-era records amid growing speculation the country will need to restructure its debt as financing costs mount. German debt slid as data showed European services and manufacturing growth unexpectedly accelerated in April, bolstering the case for higher interest rates. Greece sold 1.625 billion euros ($2.3 billion) of 13-week bills at a higher interest rate amid lower demand than the previous auction of similar debt. Greek two-year note yields breached 20 percent for the first time yesterday. Portuguese two-year yields rose to the highest in at least 15 years today. The yield difference, or spread, between Greece's 10- year bonds and German securities of a similar maturity, earlier reached 1,138 basis points. That’s the most since at least 1998. Portugal’s two-year note declined for a fifth consecutive day, pushing the yield to 10.26 percent, the highest since at least 1996. The cost of insuring Greek government debt increased seven basis points to 1,260 basis points, surpassing yesterday’s record closing level, according to CMA prices for credit default swaps. Contracts on Portugal dropped from a record, falling three basis points to 618. European Central Bank Executive Board member Juergen Stark said any country seeking to renegotiate its debt obligations would find it creates more problems than it solves. “It might be perceived at some point by some policy makers as an easy way out, but it would not solve the problem,” Stark said, according to an interview published today. “On the contrary. It is extremely costly to the respective countries. If they really considered restructuring debt, they would have to pay in the future a higher risk premium.” Germany plans to auction 6 billion euros in new five-year 2.75 percent notes tomorrow, while Spain is due to sell up to 3.5 billion euros of bonds maturing in 2021 and 2024.
Baltic Dry Index Extends Longest Slide Since January on Glut. The Baltic Dry Index, a measure of commodity-shipping costs, extended its longest run of declines since January as a glut of ships caused charter rates to slump. The gauge fell 1% to 1,271 points. That was the 16th straight retreat. Owners are contending with a fleet that's swelling at more than twice the pace of trade, according to Clarkson Research Services Ltd. The carrying capacity of the dry-bulk shipping fleet will grow 13% to 607.9 million deadweight tons this year as demand expands 5%, it said.
Gold Futures Top $1,500 on Outlook for Escalating U.S. Debt, Dollar Slump. Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment.The greenback dropped against a basket of six currencies following Standard & Poor’s revision yesterday of its long-term rating of U.S. debt to negative from stable. “Investors are shocked and flocking to gold as the downgrade threw a cold blanket over the dollar,” said Lim Chae Myung, a Seoul-based trader at Hyundai Futures Co. “The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets.” Gold futures for June delivery rose $2.40, or 0.2 percent, to $1,495.30 at 12:33 p.m. on the Comex in New York after reaching the record. Gold for immediately delivery rose as much as 0.3 percent to an all-time high of $1,499.32 before erasing gains. Before today, futures climbed 31 percent in the past year.
Government Debt May Surpass U.S. GDP in 2020: Chart of the Day. A 2 percentage-point increase in the U.S. government's borrowing costs would push debt above the nation's gross domestic product by 2020. A Bloomberg Government Study published March 7, "Cutting the Deficit: Painful Choices," forecast that U.S. government debt as a percent of GDP will rise to 84.9% in 2020. That forecast assumes that interest rates will average 3.54% from 2011 to 2020. The figure is an average of the Congressional Budget Office's effective interest rate projections for all maturities for the next 10 years. If the government's borrowing costs averaged 4.54% over the next decade, debt would rise to 92.5% of GDP in 2020. An increase of an additional percentage point to 5.54% would cause debt to balloon to 100.6% of GDP, and borrowing costs of 6.54% would push debt to 109.5% of GDP in 2020, the estimates show.
OPEC's El-Badri Sees Crude Price Staying Above $100 in 2011. OPEC Secretary General Abdalla el- Badri said he expects crude to cost more than $100 a barrel until at least next year, while Iran’s envoy to the producer group foresees an “increasing trend” for oil prices in 2011. The officials, speaking today to reporters in Tehran, underscored sentiment within the Organization of Petroleum Exporting Countries that the run-up in recent months is not a result of inadequate supply. Saudi Arabia’s Oil Minister Ali al- Naimi blamed speculators who buy crude futures for propelling pushing prices to their current “unjustified” levels, the official Saudi Press Agency reported today. “Speculation is playing a very important role, and I think the price will not come down below $100 for the rest of 2011,” el-Badri said at a news conference. The OPEC chief told reporters in Kuwait yesterday that current oil prices are “a concern” and include a premium of $15 to $20 a barrel.
Cape Wind Power Project Wins U.S. Backing for Construction. The Cape Wind Energy Project won U.S. Interior Department approval of its construction plan in Massachusetts for the nation’s first offshore wind farm. Cape Wind Associates said building the wind turbines in the water, a project in development for about a decade, may begin as early as the U.S. fall. Cape Wind plans to install 130 wind turbines in Nantucket Sound off the Massachusetts coast. The project has been opposed by homeowners whose ocean view would be affected by the windmill towers and by local lawmakers as a threat to a sensitive ecosystem.
Housing Starts in U.S. Increased 7.2% in March to 549,000 Pace. A gain in March housing starts failed to make up for ground lost the prior month, as U.S. home builders continue to struggle almost two years into the economic recovery. Work began on 549,000 houses at an annual pace, up 7.2 percent from the prior month and exceeding the 520,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Starts fell 19 percent in February to the lowest level in almost two years.
Goldman Sachs(GS) Shares Decline on Concern Earnings Growth Can't Be Sustained. Goldman Sachs Group Inc. (GS) declined in New York trading after first-quarter profit fell 21 percent and analysts said the fifth-biggest U.S. bank relied on unpredictable investment gains to beat estimates. Goldman Sachs dropped $4.17, or 2.7 percent, to $159.61 at 12:31 p.m. in New York Stock Exchange composite trading, reaching the lowest level since Oct. 5. Net income slid to $2.74 billion, the New York-based company said today in a statement. Chairman and Chief Executive Officer Lloyd C. Blankfein, 56, depended on trading and investments with the firm’s own money to generate 79 percent of first-quarter revenue. The investing and lending segment, which accounted for 23 percent of revenue, is unreliable because results are tied to market moves and because regulators might add restrictions to the business, said some analysts and investors.
Wall Street Journal:
Thousands of Islands, Many Fish. The world's biggest source of tin and thermal coal now wants to dominate the global market for another vital commodity: fish.
MarketWatch:
Hedge-Fund Assets Top $2 Trillion. Global hedge-fund assets have surpassed the $2 trillion mark for the first time ever, Hedge Fund Research said Tuesday, demonstrating the recovery of the hedge-fund industry from market losses and customer flight during the financial crisis. Total industry assets rose to $2.02 trillion, up $102 billion in the first quarter. That total exceeded the precrisis record of $1.93 trillion set in the second quarter of 2008, Hedge Fund Research said.
Fed Unveils Proposal on US Mortgage Standards. Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday. The rule, which is required by the Dodd-Frank financial reform law, is intended to tighten lending standards and combat home lending abuses that contributed to the 2007-2009 financial crisis. The rule would establish minimum underwriting standards for most mortgages and lenders could be sued by the borrower if they do not take the proper steps to check a borrowers ability to repay the loan.
Gas Prices Nearing Point Where Americans Cut Back. With about six weeks to go until the summer driving season begins, the price of a gallon of gasoline is just 18 cents away from the record price of $4.11, which was set in the summer of 2008.
Slow Payers Hinder Trade in Europe. In theory, the European Union is one gigantic economic zone of about 500 million consumers all integrated into the world’s biggest trading bloc. But the ideal is still far ahead of the reality, particularly for businesses that end up trying to collect debts across the Union’s many borders. There are still 27 different national legal systems at work in the bloc, each with its own procedures for handling claims, property attachment and bankruptcies. European officials say at least €55 billion a year in debt is simply being written off, much of it because businesses find it too daunting to press expensive, confusing lawsuits in foreign countries. Officials and business leaders say they believe that debt collection problems are a profound deterrent to commerce within the European Union and one of the reasons that job creation and wealth generation falls consistently behind the United States, where pursuing debts across state lines is a comparatively easy task.
Debt Be Not Proud: Voters Sour On Obama's Economic Leadership. As President Obama goes on the road today to sell his deficit reduction plan, a new ABC News-Washington Post poll finds 57 percent of Americans disapproving of his handling of the economy while pessimism about the nation's financial health is the highest it's been in two years.
Forbes:
Obama's Plan For A Fundamentally Different America. Obama promised to preserve the health care provided to seniors and the poor by Medicare and Medicaid by reducing the cost of health care. Once again, the actual results will be quite different than those good intentions. Unlike the Republican proposal, which would attempt to maintain health care by raising somewhat the price of insurance to senior citizens, his plan would attempt to control costs by reducing the care provided to them by Medicare. The president would cut spending by first reducing the price government pays for prescription drugs. That would save money in the short run by reducing pharmaceutical company profits without impacting the availability of medicines. Before cheering, consider the longer-term consequences. With reduced profits now, and lower expected profits on all future drugs, there will be a lot less investment in developing life saving and life enhancing drugs. That means reduced care in the future – especially for those Americans who today are under age 55 and who stand to benefit the most from the drugs that would have been created over the next 10 to 20 years.
Advanced Trading:
10 Things Hedge Funds Must Address. The Dodd-Frank will impose strict regulations on the hedge fund industry. The scope of these rules, how the industry must respond, and whether firms will embrace the spirit of the regulation to gain competitive advantage are open questions.
Rasmussen Reports:
Support for Deepwater Drilling Up to 59%. The latest Rasmussen Reports national telephone survey of Likely Voters shows that 59% now say deepwater drilling should be allowed. Twenty-two percent (22%) oppose deepwater drilling.
Reuters:
US Retail Gasoline Demand Falls -1.6% From A Year Ago. U.S. retail gasoline demand rose last week as warmer weather encouraged more driving, but was down from a year ago because of high prices at the pump, MasterCard Advisors' SpendingPulse report showed on Tuesday. Average gasoline demand rose 3.3 percent from the previous week to 9.3 million barrels per day. But that was down 1.6 percent from a year ago, marking the seventh straight slippage, due to steep pump prices. The price of retail gasoline rose again last week and was up 9.00 cents at $3.81 per gallon. That was 33.7 percent higher than a year ago. Over the latest four weeks, U.S. gasoline consumption has fallen 2.1 percent from year-ago levels.
Financial Times Deutschland:
European Central Bank Governing Council Member Nout Wellink said policy makers must stay "very alert" to avoid being "behind the curve," citing an interview. "There are many reasons to monitor the situation closely and act immediately if necessary."
Vedomosti:
Russia's Finance Ministry will plan its budget for 2012 through 2014 using an oil price of $120 to $122 a barrel, the range required to avoid a deficit next year, citing Finance Minister Alexei Kudrin.
Il Sole 24 Ore:
European Central Bank Executive Board member Lorenzo Bini Smaghi said S&P's decision to cut the U.S. outlook to "negative" should encourage nations to lower their public debt burden.
CTV:
Few Line Up in Toronto to Buy RIM's(RIMM) BlackBerry Playbook. The launch of the PlayBook tablet by BlackBerry maker Research in Motion was not greeted by jostling crowds of latest-tech-hungry geeks and lineups for the new device at stores could be tallied on one hand. The stark contrast with the launch of rival Apple's iPad 2 tablet last month was impossible to miss -- marketing hype accelerated in the weeks leading up to the new iPad's debut and swarms gathered around the block to get their hands on it.
JoongAng Daily:
Europe's Subprime Quagmire. Europe is making a fundamental mistake by allowing debt restructuring and real stress tests for banks to remain taboo.
Greek Default Drives Risks Reviving Euro-Region Contagion as Bonds Plunge. European investors and politicians prodding Greece to restructure its debt may end up wishing they hadn’t. Talk of restructuring spurred by Germany risks re-igniting Europe’s debt crisis, enveloping Spain just weeks after European leaders said bailouts of Greece, Ireland and Portugal ended contagion. Under a Greek default, Europe’s financial system would strain as banks in and outside Greece and holders of Greek bonds, such as the European Central Bank and domestic pension funds, tally losses. “By restructuring Greek debt you also may precipitate a crisis in Spain,” David Watts, a strategist at CreditSights Inc. in London, said in a telephone interview. “At that point it doesn’t matter how much you’ve saved by restructuring Greece, the fallout from Spain is much greater. The issue comes back to not knowing the ultimate cost.” Speculation by German officials that Greece may run out of alternatives to restructuring underscores their reluctance to spend more on bailouts, while ignoring precedent. Sovereign financial crises usually don’t come in isolation. Thailand’s 1997 devaluation triggered the Asian crisis, Russia’s 1998 default set off a global financial pandemic and Latin America required the U.S. to develop Brady bonds as a virtual guarantee. The euro had its steepest decline in almost four months yesterday and Greek and Portuguese bonds tumbled, sending risk premiums to euro-era records as default speculation mounted. Otto Fricke, the parliamentary budget spokesman for Chancellor Angela Merkel’s Free Democratic Party coalition ally, said in an interview yesterday Greece may not make it through the summer. Such comments “signal a loss of patience” that makes rash action more likely and risks “a Lehman-style chain reaction to a potential Greek default,” Holger Schmieding, London-based chief economist at Joh. Berenberg Gossler & Co., said in a research note yesterday. “The contagion risks are still far too serious” as Spain and Ireland need more time to turn their fiscal positions around. French and German lenders accounted for almost two-thirds of lending to Greek public and private debtors as of Sept. 30, according to the Bank for International Settlements. French banks held $59.4 billion and German banks $40.3 billion, followed by U.K. and Portuguese lenders to Greece. Markets underscore investors’ diminishing expectations for getting repaid even as the government is funded by international aid. Greek 10-year debt trades for 60 cents and yields 14.26 percent, more than 11 percentage points higher than benchmark German bunds. Two-year Greek yields soared above 20 percent and credit-default swaps signal a 64.5 percent chance of default within five years. Without tipping its hand, Germany’s aim may be something less than a full-blown restructuring that forces investors to write off Greek debt. Merkel and Schaeuble “may be softening the ground” for extending maturities on Greek bonds before German elections in 2013, Deutsche Bank AG analysts led by Chief Economist Thomas Mayer said in a note. Even that scenario “could be costly” by forcing German banks to adjust the value of their holdings. “From the French and German perspective it’s not clear that the benefits of restructuring Greece outweigh the costs,” CreditSights’ Watts said. “You have to take into account that German and French banks are among the most exposed to Greece.” Greece holds a trump card of its own. The government could reschedule unilaterally debt totaling about 340 billion euros since “the bonds in question were issued under Greek law,” Philip Wood, a partner at Allen & Overy in London, said by phone. “What’s going on is a high-stakes game of poker between Greece, the EU authorities and the capital markets,” he said. “Both sides have very strong cards and the game will be very long and very serious. The whole of EU prestige is being tested, challenged.”
Best BRIC Stock Rally Since 1997 Seen Doomed as Rates Increase. The longest rally in developing- nation stocks since 1997 may be ending as higher interest rates in Brazil, Russia, India and China curb earnings growth. For the first time in two years, emerging-market analysts are cutting profit estimates more than they’re raising them, consumer stocks are trailing energy producers and shares of smaller companies are losing to larger equities, data compiled by Bloomberg and Morgan Stanley show. The same reversals foreshadowed the end of the emerging-market rally in 2008. While the benchmark MSCI Emerging Markets Index has gained 0.9 percent this year and mutual fund investors are buying developing-nation equities at the fastest pace in five months, the gauge is valued at about 2.1 times net assets, 11 percent higher than the 15-year average. Societe Generale SA and Barclays Wealth are advising clients to reduce emerging markets investments as inflation erodes record-high profit margins. “Inflation risk is much more visible” in emerging markets than the developed world, said Kevin Gardiner, the global head of investment strategy at London-based Barclays Wealth, which oversees about $266 billion. “Growth is beginning to slow. Meanwhile, valuations look full.” China has increased borrowing costs four times since October, while India raised rates eight times since March 2010 and Brazil boosted its rate five times. Russia lifted its main rate in February. China’s benchmark one-year lending rate is 6.31 percent, while India’s repurchase rate is 6.75 percent and Brazil’s Selic rate is 11.75 percent. Russia’s refinancing rate is 8 percent. Rising costs and interest rates are starting to take a toll on company profits. Gross margin, or the percentage of sales remaining after product expenses, has slipped to an average 31 percent for companies in the MSCI emerging-market index, from 33 percent last year, the highest level since Bloomberg began tracking the annual data in 1996. Rising commodity prices are “triggering second-round effects via higher wages,” Alain Bokobza, the head of asset allocation strategy at Paris-based SocGen, wrotein an April 11 report titled “The EM Party Is Over.” He recommends switching to developed-nation equities from emerging markets. Infosys was the seventh-biggest contributor to the MSCI index’s 2 percent retreat last week. The gauge’s decline yesterday pared the gain from its March 2009 low to 145 percent. The 21-country index has rallied for 777 calendar days without a drop of at least 20 percent, the longest stretch since July 1997, according to data compiled by Westport, Connecticut-based research firm Birinyi Associates Inc. and Bloomberg. Mutual-fund investors are also reviving bets on a rally. They poured about $10 billion into developing-nation stock funds during the past three weeks, the most in five months, data compiled by Cambridge, Massachusetts-based research firm EPFR Global show. That compares with $28 billion of outflows in the previous nine weeks, EPFR data show. Analysts are cutting more profit forecasts than they’re raising them for seven of 10 industry groups in the MSCI emerging-market gauge, with the biggest reductions on health care, telecommunications and technology companies, according to Morgan Stanley. Consumer stocks in the MSCI emerging-market index trailed energy companies by 10 percentage points in the first quarter, the most since the second quarter of 2008, when emerging-market equities began tumbling amid the global financial crisis. Small- cap companies, which have market values of less than $2 billion and get a higher proportion of their revenue from consumers, trailed the biggest emerging-market stocks by 5.5 percentage points last quarter, also the most since 2008. “It’s quite difficult for equity markets to rally if you have negative revisions to the earnings outlook,” Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong, said in an interview. “This is quite an important moment and we don’t think the situation will improve in the coming months.” China International Capital Corp., the country’s biggest investment bank, predicts slowing economic and earnings growth will limit equity gains in the biggest emerging stock market. The top-ranked provider of China research in Asiamoney’s survey recommends “defensive” Chinese companies including drugmakers and consumer-staples producers. China bulls expecting a rally in stocks as the central banks nears the end of its monetary policy tightening may be disappointed, Hao Hong, the global equity strategist at CICC, said in an April 10 report. The Hang Seng China Enterprises Index of Chinese shares listed in Hong Kong dropped 23 percent in the six months after the central bank stopped raising rates in 2007, underperforming the MSCI emerging-market index by 14 percentage points. In 2004, the H-share gauge rose about 3 percent after rate increases ended, trailing the MSCI index by 8 percentage points. “In most emerging markets, you do have these margin pressures building,” Michael Shaoul, the chairman of Marketfield Asset Management in New York, who has been shifting investments to the U.S. from emerging markets, said in an interview. “We’re fairly convinced that this monetary cycle will end in some distress.”
China Crops in Short Supply as Fewer Farms Spur Food Futures. Across the road from Zhao Yuanyi’s wheat field in China’s Shandong province, Chonche Group is expanding a rail-car factory on what used to be 227 hectares of farms. Nearby, Geely Automobile Holdings Ltd. (175) makes sedans on an 87 hectare site that four years ago was covered by crops. The factories sprawling from Jinan city, 350 kilometers (220 miles) south of Beijing, put Zhao on the front line of a clash between a policy of food self-sufficiency and industrial growth that made China the world’s second-biggest economy. Industrialization is winning, signaling prices for crops like wheat and corn will rise as China is increasingly unable to feed itself and vies for supplies on global markets.
Drought in Texas May Slash Wheat Output 61%, Economists Say. Wheat production in Texas, the fifth-largest U.S. grower, may plunge 61 percent because of a prolonged drought, said Mark Welch, a grain-marketing economist at Texas A&M University. The crop may decline to 50 million bushels as the dry spell damages plants and farmers abandon fields, Welch said in a telephone interview. Texas produced 127.5 million bushels last year and 95 million on average in the past decade, U.S. government data show. Harvesting of winter wheat is completed around July. “The whole state is dry,” said Welch, who works at the Texas AgriLife Extension Service in College Station. “Even if it rains pretty soon, our wheat is far enough along that it’s just about too late for it.”
Palm Oil Advancing 23% Hurting Unilever as Stockpiles Decline to 1974 Low. At a time when consumers are focused on food costs that are within about 3 percent of a record, stockpiles of edible oils needed to make everything from noodles to fish sticks are dropping to a three-decade low. The combined stocks of nine oils will plunge 25 percent to 9.39 million metric tons this year, or about 23 days of demand, the fewest since 1974, the U.S. Department of Agriculture estimates. Palm oil prices will climb as much as 23 percent to 4,000 ringgit ($1,324) a ton by Dec. 31, based on the median in a Bloomberg survey of 11 analysts and traders.
Biggs Said He Didn't Adjust Fund After S&P Statement On U.S. Barton Biggs, the hedge fund manager who bought stocks when the market bottomed in March 2009, said he’s still bullish on equities after Standard & Poor’s revised its credit outlook on the U.S. “Have I changed my net long? Not really,” Biggs, who runs New York-based Traxis Partners LP, said in an interview today Bloomberg Television’s “Street Smart” with Carol Massar and Matt Miller. “But am I more disquieted than I was on Friday? Yeah, I guess I am.” Global stocks fell today after the People’s Bank of China raised reserve requirements for the country’s banks to tame inflation. Biggs, a former chairman of Morgan Stanley Asset Management, said the move by China’s central bank, which indicates the country is going to do whatever it takes to cool inflation, makes him nervous about his bullish position on Asia and global equities. “China is the world’s locomotive,” he said. “It’s making me nervous about my commitment to Asia, making me nervous about my commitment to stocks in general, not just China.”
Obama Made $1.7 Million in 2010, Paid $453,770 Tax. President Barack Obama and his wife, Michelle, reported $1.7 million in adjusted gross income last year and paid $453,770 in federal income taxes. The Obamas reported $1.3 million in taxable income after deductions, according to a 2010 tax return released by the White House today, the deadline for filing tax returns. Obama earned his $400,000 presidential salary plus almost $1.4 million in income associated with his books.
New York Life, Northwestern Mutual May Lose AAA at S&P. New York Life Insurance Co. and Northwestern Mutual Life Insurance Co., policyholder-owned carriers, may be stripped of their AAA credit grades at Standard & Poor’s, which lowered the outlook for U.S. sovereign debt. “The ratings on the U.S. insurers are constrained by the U.S. sovereign credit rating because their businesses and assets are highly concentrated in the U.S.,” S&P said today in a statement. The companies were among five AAA-rated insurers whose ratings outlooks were lowered to “negative” from “stable.” The companies’ AAA ratings were affirmed.
Apple(AAPL) Claims Samsung Phones, Tablet Copy iPhone, iPad. Apple Inc. (AAPL) filed a lawsuit claiming Samsung Electronics Co.’s Galaxy phones and Galaxy Tab tablet computers are infringing patents and the trademarked look of the iPhone and iPad.
Online Poker Customer Accounts Frozen as U.S. Indicts Gambling Companies. Online poker accounts of individual players have been frozen following the indictment of Web gambling companies on charges of fraud and money-laundering and of running illegal casino operations. About 76 bank accounts in 14 countries have been frozen, preventing players from accessing balances held by the online betting companies, said Kelly Langmesser, a spokeswoman for the FBI’s New York office. Eleven people were charged last week.
Investment Funds Claim Banks Conspired to Manipulate London Interbank Rate. Three European asset management firms accused banks including Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), Barclays Bank Plc, Citibank NA and Credit Suisse Group AG (CSGN) of conspiring to manipulate the London interbank offered rate. The banks sold Libor-based futures, options, swaps and derivative instruments “at artificial prices that defendants caused,” harming investors, FTC Capital GmbH of Vienna, FTC Futures Fund SICAV of Luxembourg and FTC Futures Fund PCC Ltd. of Gibraltar said in an April 15 complaint in New York federal court. From 2006 to 2009, the banks “collectively agreed to artificially suppress the Libor rate,” and in early 2008, “during the most significant financial crisis since the Great Depression,” the rate remained steady when it “should have increased significantly,” the funds contend. A person close to an investigation on possible Libor manipulation said last month that regulators in the U.S. and U.K. were cooperating in the probe.
Wall Street Journal:
U.S. Warned on Debt Load. A blunt warning Monday from a credit-rating firm about the U.S. government's mounting debt pushed stock markets lower and intensified political divisions in Washington about how best to tackle growing deficits. Both the Obama administration and House Republicans scrambled to gain leverage from Standard & Poor's changing its outlook on U.S. Treasury securities to "negative" from "stable."
Big U.S. Firms Shift Hiring Abroad. U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization's effect on the U.S. economy. The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That's a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad. In all, U.S. multinationals employed 21.1 million people at home in 2009 and 10.3 million elsewhere, including increasing numbers of higher-skilled foreign workers. The trend highlights the growing importance of other economies, particularly in rapidly growing Asia, to big U.S. businesses such as General Electric Co., Caterpillar Inc., Microsoft Corp. and Wal-Mart Stores Inc. The data also underscore the vulnerability of the U.S. economy, particularly at a time when unemployment is high and wages aren't rising. Jobs at multinationals tend to pay above-average wages and, for decades, sustained the American middle class. "It's definitely something to worry about," says economist Matthew Slaughter, who served as an adviser to former president George W. Bush. Mr. Slaughter, now at Dartmouth College's Tuck School of Business, is among those who think the U.S. has lost some allure. A decade ago, Mr. Slaughter, who consults for several big companies and trade associations, drew attention with his observation that "for every one job that U.S. multinationals created abroad...they created nearly two U.S. jobs in their [U.S.-based] parents." That was true in the 1990s, he says. It is no longer. The Commerce Department's summary of its latest annual survey shows that in 2009, a recession year in which multinationals' sales and capital spending fell, the companies cut 1.2 million, or 5.3%, of their workers in the U.S. and 100,000, or 1.5%, of those abroad. The growth of their overseas work forces is a sensitive point for U.S. companies. Many of them don't disclose how many of their workers are abroad. And some who do won't talk about it. While hiring, firing, acquiring and divesting in recent years, GE has been reducing the overall size of its work force both domestically and internationally. Between 2005 and 2010, the industrial conglomerate cut 1,000 workers overseas and 28,000 in the U.S. Jeffrey Immelt, GE's chief executive, says these cuts don't reflect a relentless search for the lowest wages, or at least they don't any longer. "We've globalized around markets, not cheap labor. The era of globalization around cheap labor is over," he said in a speech in Washington last month. "Today we go to Brazil, we go to China, we go to India, because that's where the customers are." In 2000, 30% of GE's business was overseas; today, 60% is. In 2000, 46% of GE employees were overseas; today, 54% are. The economists who advised McKinsey on its report dubbed multinationals "canaries in the coal mine." They include Mr. Slaughter and Clinton White House veterans Laura Tyson, of the University of California, Berkeley, and Martin Baily, of the Brookings Institution. They warn that a combination of the U.S. tax code, the declining state of U.S. infrastructure, the quality of the country's education system and barriers to the immigration of skilled workers may be making the U.S. less attractive to multinationals. "We can excoriate them" and also listen to them, Mr. Slaughter says of the multinationals. "But we can't just excoriate them." Other observers see the trend as a failure of U.S. policies to counter aggressive foreign governments. "All the incentives in the global economy—an overvalued U.S. dollar, lower corporate taxes abroad, very aggressive investment incentives abroad, government pressure abroad versus none at home—are such as to steadily move the production of tradable goods and the provision of tradable services out of the U.S.," says Clyde Prestowitz, a former trade negotiator turned critic of U.S. trade policy. "That has been having, and will continue to have, a negative impact on U.S. employment and wages."
Egyptians Court U.S. Foes. Iran and Egypt's new government signaled Monday they were moving quickly to thaw decades of frosty relations, worrying the U.S., Israel and Saudi Arabia that the overtures could upset the Mideast's fragile balance of power. Iran said it appointed an ambassador to Egypt for the first time since the two sides froze diplomatic relations more than three decades ago, the website of the Iranian government's official English-language channel, Press TV, reported late Monday. Also Monday, officials at Egypt's Ministry of Foreign Affairs confirmed that new foreign minister Nabil Elaraby is considering a visit to the Gaza Strip—an area controlled by Hamas, a militant Palestinian Islamist group backed by Tehran and until now shunned by Cairo.
U.S. Hurries to Sell GM(GM) Stake. The U.S. government plans to sell a significant share of its remaining stake in General Motors Co. this summer despite the disappointing performance of the auto maker's stock, people familiar with the matter said. A sale within the next several months would almost certainly mean U.S. taxpayers will take a loss on their $50 billion rescue of the Detroit auto maker in 2009.
Twitter in Talks to Buy TweetDeck. Twitter Inc. is in advanced talks to buy TweetDeck Inc. for around $50 million, people familiar with the matter said.
The Obama Speech Downgrade. Why did Standard & Poor's drop its "negative" long-term outlook bomb on America's AAA credit rating yesterday? S&P revealed no numbers not previously known to a "shocked" stock market, which dropped 140 points. So what's new?
OPEC Nations Face a Balancing Act. Analysts Say Member Countries Need to Raise Oil Prices to Balance Budgets After Spending in Response to Civil Unrest.
CNBC:
Texas Instruments(TXN) Earnings Disappoint on Japan Costs. Texas Instruments reported earnings that fell below analysts' estimates Monday as the recent earthquake and subsequent crisis in Japan took a bite out of the company's profits. The Dallas, Texas-based semiconductor company reported first-quarter earnings of 55 cents a share, compared with 52 cents a share last year. Revenue came in at $3.392 billion, versus $3.205 a year earlier. Wall Street analysts' forecasts on average called for earnings of 58 cents a share on revenue of $3.394 billion, according to data from Thomson Reuters. The company cited $30 million in costs resulting from the massive earthquake in Japan last month. TI said it took 2 cents out of their earnings.
Total US Debt Now Officially Above The Ceiling. A quick look at today's just released total debt to the penny from the Treasury may crimp the artificial smile of even such die hard administration sycophants as Moodys. Why: because the total debt, as we predicted when we observed last week's 30 Year auction, is now at $14,305,336,580,992.11. This is a problem because as anyone who rails against the broken US fiscal apparatus should be able to tell you, the debt ceiling is $14.294 trillion.
ECB's Trichet: Until Now, Inflation Expectations Stable. The European Central Bank's leader on Monday said his institution raised interest rates to prevent inflation from taking hold in the euro zone, and he said Greece's austerity plan should be followed to its completion. The ECB is "trying to deliver price stability in the medium term" and interest rates were lifted at the last policy meeting "precisely to be sure" that this will happen, central bank President Jean-Claude Trichet said Monday in an interview with The Wall Street Journal. "Until now [inflation expectations] have been very well anchored," Trichet said. "We will not accept second-round effects" of inflation in the euro zone, and "until now, I do not see alarming second-round effects," he said, although he added: "There are some signs here and there that are not going in the right direction." When it comes to inflation, "we have to remain alert, and we are," Trichet said.
New York Times:
Finding Goldman(GS) at Fault in the Crisis. The exhaustive report on the financial crisis by the Senate Permanent Subcommittee on Investigations blames various parties, including banks for their risky transactions and federal regulators for their lax oversight. But the subcommittee saved some of its most scathing remarks for Goldman Sachs and its chief executive, Lloyd C. Blankfein.
Forbes:
Russian Finance Minister Kudrin Says US Won't Meet Budget Goals. The US will not meet the budget goals it set out to reach by 2014, said Russian Finance Minister Alexei Kudrin during a gathering at the Peterson Institute for International Economics in Washington DC this past weekend. We all hoped the US deficit would be cut down to 4% of GDP by 2014, but we don’t see that as being realistic anymore,” Kudrin said.
Medical Innovation Critical to Bringing Down Health Care Costs. By the end of this decade, national health care spending is projected to amount to one-fifth of the country's GDP. That's more than four times military expenditures--and five times the amount spent each year on education. And that's a conservative estimate. ObamaCare will increase national health spending by $311 billion over the decade. But there is hope for averting this bleak fiscal future. Sustained medical innovation can stop the never-ending ascent of health care costs--and improve the quality and length of our lives.
Democracy? Egyptian Muslims Protest Coptic Christian Governor. Protesters led by hardline Islamists in southern Egypt held their ground Monday, saying they won’t end their campaign of civil disobedience until the government removes a newly appointed Coptic Christian governor. The protesters, many from the ultraconservative Salafi trend of Islam, have been sitting on train tracks, taken over government buildings and blocked main roads in the southern city of Qena, insisting the new governor won’t properly implement Islamic law.
Politico:
DoD Probe Clears Stanley McChrystal, Aides. A Pentagon investigation has found no proof of wrongdoing by retired Army Gen. Stanley McChrystal or his aides in behavior described in a Rolling Stone article that cost him his job as the top U.S. commander in Afghanistan. The report completed April 8 said “the evidence was insufficient to substantiate a violation of applicable DoD standards with respect to any of the incidents on which we focused,” and cast doubt on the accuracy of the June 2010 article by Michael Hastings, entitled “The Runaway General.” “Not all of the events at issue occurred as reported in the article. In some instances, we found no witness who acknowledged making or hearing the comments as reported,” the report said. “In other instances, we confirmed that the general substance of an incident at issue occurred, but not in the exact context described in the article.”
AP:
Duke Lacrosse Accuser Indicted on Murder Charge. The woman who falsely accused three Duke lacrosse players of raping her in 2006 was charged Monday with murder in the death of her boyfriend. Crystal Mangum, 32, was indicted on a charge of first-degree murder and two counts of larceny.
Steel Dynamics(STLD) Q1 Results Beat Wall Street View. Steel Dynamics Inc quarterly results beat Wall Street forecasts helped by higher volumes and better margins at its steel and metals recycling operations, sending the fifth-largest U.S. steelmaker's shares up 4 percent in after-market trade.
Badger Meter(BMI) Q1 Results Miss Estimaets; Shares Fall. Badger Meter Inc's quarterly results missed Wall Street estimates, hurt by lower sales of its meter-reading products and higher copper prices, sending its shares down 11 percent after market. The company's products include residential and commercial water meters, industrial fluid systems, small precision valves and automotive fluid meters.
India Realtors Fail to Repay Bank Loans. Mumbai/Bangalore: Indian real estate firms, hit by a shortage of funds and a drop in property sales, are feeling the squeeze in cash flows and consequently their ability to repay bank loans. By a conservative estimate of the industry, at least half a dozen companies are finding it difficult to meet repayment commitments, according to four persons familiar with the situation. Around Rs20,000 crore of repayments were due by real estate companies by 31 March after loans were restructured by banks following the 2008-09 slump, but at least half a dozen of them have been unable to meet this deadline. “They are likely to default,” the chairman of a large public sector bank said, adding that some of these firms already have overdue interest repayments.
NHK:
Tokyo Electric Power Co. will examine the sea bottom for possible plutonium contamination. Plutonium has not been detected in the sea near the damaged Fukushima Dai-Ichi nuclear plant, but the utility will examine the sea bed because the radioactive materials are heavy.
ShanghaiDaily.com:
Shanghai Population Over 60 to Hit 33% Within 5 Years. One-third of Shanghai's population will reach 60 years of age in five years, citing an annual report of the city's research center on aging. The city had about 3.3 million residents over 60 last year, or 23% of the population, the report said. This compares with 12% population of senior citizens in China. About 200,00 city residents will reach the age of 60 annually from this year to 2015, double the figure from the past five years, according to the report.
Economic Information Daily:
China may raise interest rates once or twice this quarter, Ba Shusong, a researcher at the State Council's Development Research Center, wrote in a commentary. The nation may also adjust banks' reserve requirement ratios three times this quarter, Ba wrote. The yuan may gain by a larger magnitude on higher imported inflation pressure, Ba wrote. China's consumer prices may continue to rise by about 5% in the third quarter, Ba wrote.
China National Radio:
China aims to double workers' wages by the end of 2015 through an annual increase of 15%, citing Yang Zhiming, vice minister of Human Resources and Social Security.
Evening Recommendations Citigroup:
Reiterated Buy (HAL), raised estimates, boosted target to $61.
Night Trading
Asian equity indices are -1.50% to -.50% on average.
Asia Ex-Japan Investment Grade CDS Index 111.0 +5.0 basis points.
Asia Pacific Sovereign CDS Index 116.50 +3.0 basis points.
Building Permits for March are estimated to rise to 540K versus 517K in February.
Housing Starts for March are estimated to rise to 520K versus 479K in February.
Upcoming Splits
None of note
Other Potential Market Movers
The weekly retail sales reports could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.
North American Investment Grade CDS Index 96.29 +1.96%
European Financial Sector CDS Index 93.83 +9.20%
Western Europe Sovereign Debt CDS Index 177.25 bps +2.80%
Emerging Market CDS Index 206.51 +3.08%
2-Year Swap Spread 17.0 unch.
TED Spread 22.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .05% -1 bp
Yield Curve 272.0 unch.
China Import Iron Ore Spot $180.90/Metric Tonne -.33%
Citi US Economic Surprise Index +20.20 -2.8 points
10-Year TIPS Spread 2.60% -2 bps
Overseas Futures:
Nikkei Futures: Indicating -86 open in Japan
DAX Futures: Indicating +34 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical, Retail, Tech and Biotech sector longs
Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades back below its 50-day moving average on US/European debt fears, emerging markets inflation worries, rising food prices, technical selling, earnings jitters, more shorting, Japan concerns and profit-taking. On the positive side, Homebuilding shares are slightly higher on the day. The 10-year yield is falling -4 bps to 3.37% and the US Dollar Index is +.88% higher despite today's US debt outlook downgrade. Oil is falling -2.04% despite Saudi production cutbacks and commentary. Tech sector leader (AAPL) has reversed into positive territory today on 1Q Mac sales optimism and iPhone production reports. On the negative side, Construction, HMO, I-Banking, Networking, Semi, Paper, Steel, Energy, Oil Tanker, Alt Energy and Coal shares are under significant pressure, falling more than 2.0%. (XLF) and the Transports have been heavy throughout the day. As well, small-caps are underperforming. Gold is rising +.51%, lumber is declining -1.56% and copper is falling -1.03%. The UBS-Bloomberg Spot Ag Index is rising +.65%. The US price for a gallon of gas is rising +.01/gallon today to $3.83/gallon. It is up .71/gallon in 62 days. The Spain sovereign cds is jumping +4.9% to 246.79 bps, the Italy sovereign cds is soaring +10.36% to 158.08 bps, the Ireland sovereign cds is climbing +6.64% to 608.38 bps, the Portugal sovereign cds is rising +3.47% to 623.88 bps, the Belgium sovereign cds is rising +6.24% to 145.64 bps, the UK soverign cds is rising +4.0% to 57.94 bps, the Russia sovereign cds is jumping +7.92% to 139.0 bps and the Greece sovereign cds is surging +6.19% to 1,297.50 bps. The Greece and Portugal sovereign cds are making new record highs. Moreover, the Spain sovereign cds continues to surge. The Eurozone Investment Grade CDS Index is jumping +5.51% to 70.08 bps. The US sovereign cds is soaring +18.9% to 49.33 bps and the US Muni CDS Index is climbing +3.0% to 154.38 bps. Singapore Electronics exports fell -13.8% in March, which was the largest decline since Oct. 2009. Technical action in India's Sensex is poor. A convincing break back below its 200-day moving average is likely. Given the obvious headwinds, investor complacency remains fairly elevated. I suspect today's stock weakness is more related to emerging market hard landing fears and a flaring up in the Eurozone debt situation than perceived. The US debt outlook downgrade is a large negative, but was expected. I expect US stocks to trade modestly lower into the close from current levels on more shorting, rising eurozone/US debt angst, emerging market inflation fears, Japan concerns, technical selling, rising food prices and profit-taking.
