Friday, July 29, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, US Debt Ceiling Concerns, Global Growth Worries, Emerging Markets Inflation Fears

Posted by Gary .....at 4:21 PM

Broad Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 25.02 +5.39%
  • ISE Sentiment Index 123.0 +28.13%
  • Total Put/Call 1.23 +32.26%
  • NYSE Arms .90 -18.70%
Credit Investor Angst:
  • North American Investment Grade CDS Index 95.48 +1.10%
  • European Financial Sector CDS Index 150.50 +3.0%
  • Western Europe Sovereign Debt CDS Index 284.50 -.47%
  • Emerging Market CDS Index 213.43 +.96%
  • 2-Year Swap Spread 23.0 +1 bp
  • TED Spread 17.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .08% +1 bp
  • Yield Curve 243.0 -10 bps
  • China Import Iron Ore Spot $175.50/Metric Tonne +.06%
  • Citi US Economic Surprise Index -91.40 -5.2 points
  • 10-Year TIPS Spread 2.43% -2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +7 open in Japan
  • DAX Futures: Indicating -2 open in Germany
Portfolio:
  • Higher: On gains in my Retail, Medical and Biotech 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 bearish as the S&P 500 is hovering just above its 200-day moving average on rising eurozone debt angst, US debt ceiling concerns, more poor US economic data, emerging market inflation fears and global growth worries. On the positive side, Defense, Medical, Biotech, Hospital, Construction and Homebuilding shares are especially strong, rising .50%+. Oil is falling -1.29%, copper is rising +.29% and the UBS-Bloomberg Ag Spot Index is down -1.54%. On the negative side, Disk Drive, Semi, Computer, Utility, Energy, Agriculture, Internet, Networking, Gaming and Airline shares are under pressure, falling more than -.75%. Cyclicals are underperforming again. The industrials(ETF:XLI), after breaking down through their 200-day moving average on volume recently, remain unable to bounce. The Networking Sub-Index is down -23.1% from its April 27th high. Rice is falling -1.7% today, but is still near a multi-year high, soaring about +25.0% in less than 3 weeks. The US price for a gallon of gas is unch. today at $3.71/gallon. It is up .57/gallon in less than 5 months. The Italy sovereign cds is jumping +3.85% to 310.52 bps, the France sovereign cds is rising +3.01% to 122.12 bps, the Germany sovereign cds is gaining +2.03% to 64.17 bps, the Spain sovereign cds is surging +5.2% to 363.59 bps, the Belgium sovereign cds is rising +4.12% to 198.47 bps and the US sovereign cds is gaining +.8% to 64.18 bps. The Italy sovereign cds has soared +95 bps in 6 days. The German sovereign cds is hitting a multi-year high today. Spain, Italy and French sovereign cds are very near all-time highs. The Eurozone Financial Sector CDS Index is approaching record highs, as well. Australian stocks broke below technical support last night and are down -7.1% ytd. French stocks fell another -1.07% today and are back to their pre-Greek debt deal lows. Some US politicians efforts to spook the equity and bond markets continue to have some success, however I still suspect that a larger portion of recent stock losses are the result of ongoing European debt concerns, lowered forward earnings guidance and emerging market growth/inflation worries than most investors perceive. I expect stocks to see a large surge higher on any US debt deal resolution, however gains may prove unsustainable unless other still developing headwinds subside very soon. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, global growth worries, US debt ceiling concerns, earnings jitters and emerging markets inflation fears.
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Today's Headlines

Posted by Gary .....at 3:06 PM

Bloomberg:
  • Economy in U.S. Grows Less Than Forecast. The U.S. economy grew less than forecast in the second quarter, after almost stalling at the start of the year, as consumers retrenched. Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent. “The second-half rebound is melting away,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP. “It’s a very, very difficult situation for policy makers. The Fed could give a pretty strong signal that they are not likely to move on interest rates for a very long time.” The yield on the benchmark 10-year note decreased to 2.85 percent at 11:12 a.m. in New York from 2.95 percent late yesterday. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 2.1 percent pace, the most since the last three months of 2009, compared with 1.6 percent in the first quarter, as higher oil and food costs pushed up prices of other goods and services. “This is the worst of all worlds for investors, certainly the worst of all worlds for the Fed,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in an interview on Bloomberg Television. “A little too much inflation, not enough growth, that is a tough scenario in the U.S.” Consumer spending from April through June showed the smallest gain since the second quarter of 2009, when the economy was in recession. The slump reflected a 4.4 percent plunge in purchases of durable goods like automobiles. Higher expenses for necessities like food and energy may have curtailed spending on less essential items. The cost of a gallon of regular gasoline climbed in May to about $4 a gallon, the highest in almost three years, according to AAA, the nation’s biggest auto group. The absence of faster job growth is also discouraging shoppers. The unemployment rate climbed to 9.2 percent in June while payrolls grew by 18,000, the fewest in nine months, Labor Department figures showed on July 8.
  • Spain Faces Moody's Rating Reduction as Greek Bailout Increases Debt Risks. Spain faces a possible downgrade by Moody’s Investors Service as its regions struggle to cut budget deficits and last week’s Greek bailout increases the risk that bondholders will have to pay for further European rescues. Moody’s is reviewing the nation’s Aa2 classification, the ratings company said in a statement today. A cut would probably be “limited to one notch,” Moody’s said. The euro fell. Spain has the same credit rating as Italy, which is also on review for downgrade at Moody’s. “This news is a blow to Europe’s efforts to contain the debt crisis to smaller countries like Greece or Portugal,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. While European leaders on July 21 agreed to bulk up their rescue fund to set up a firewall around countries such as Spain, the yield on the country’s 10-year bond has again breached 6 percent after falling last week. Moody’s also said it’s concerned that it will take too long for European officials to empower the 440 billion euros ($629 billion) fund so that it can buy government debt. Spanish 10-year bonds fell for a third straight day, pushing the yield on the securities 4 basis points higher to 6.08 percent as of 10:13 a.m. in London. The additional yield investors demand to hold the securities instead of benchmark German bunds rose by eight basis points to 348 basis points. In its note, Moody’s said the last Greek rescue plan is likely to increase pressure on Spain as the package “has signaled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits” and because it is unclear when the bailout fund’s new powers will take effect. “Challenges to long-term budget balance remain due to Spain’s subdued economic growth and fiscal slippage within parts of its regional and local government sector,” Moody’s said. Moody’s also cut debt ratings of six Spanish regions by one level to reflect the “deterioration of their fiscal and debt positions.” Castilla-La Mancha, the central territory with Spain’s worst deficit, was cut to A3 from A2, while the northern region of Catalunya was lowered to Baa1 from A3. Five more regions were put under review, three of them for a downgrade. The debt and deposit ratings of five Spanish banks were also placed on review by Moody’s. Lenders facing a possible downgrade are Banco Santander SA (SAN), CaixaBank, Banco Bilbao Vizcaya Argentaria SA (BBVA), La Caixa and CECA.
  • Michigan Consumer-Sentiment Index Fell to 63.7 in July From 71.5 in June. Confidence among U.S. consumers dropped more than forecast in July to the lowest level in two years, which may hold back the biggest part of the economy. The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7, the weakest since March 2009, from 71.5 in June. The gauge was projected to decline to 64, according to the median forecast of economists surveyed by Bloomberg News. The preliminary June reading was 63.8. “We have to see a pickup in job growth at the very least before the consumer shows a little more enthusiasm to spend,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “It doesn’t inspire much confidence in a consumer-led economic recovery, at best the consumer will lag the recovery.” The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 75.8 from 82 the prior month. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 56 from 64.8.
  • Crude Oil Tumbles, Heads for Weekly Decline, on U.S. GDP, Debt Stalemate. Oil fell, heading for the first weekly drop since June, as the U.S. economy grew less than estimated in the second quarter and a deadlock of U.S. lawmakers over raising the debt limit further threatened expansion. Futures tumbled as much as 2.6 percent after the Commerce Department reported that gross domestic product rose at a 1.3 percent annual rate, less than the 1.8 percent median estimate of economists surveyed by Bloomberg News. Crude for September delivery fell $1.33, or 1.4 percent, to $96.11 a barrel at 11:24 a.m. on the New York Mercantile Exchange. Earlier, it touched $94.95, the lowest price since July 18 on an intraday basis. Prices are down 3.8 percent this week and have risen 69 cents in July. Crude in New York is extending losses as prices slide below the 50-day moving average, according to data compiled by Bloomberg. Front-month futures have settled for more than a week above this indicator, at $97.33 today. A breach of technical support usually means prices will continue to fall.
  • S&P Slammed by Wall Street Banks Over Pulled Commercial Mortgage Rating. Wall Street banks including Morgan Stanley and Deutsche Bank AG slammed Standard & Poor’s decision to suspend ratings on commercial-mortgage bonds after finding a flaw in the review process. S&P withdrew rankings it had assigned to a $1.5 billion offering from Goldman Sachs Group Inc. (GS) and Citigroup Inc., forcing the banks to scuttle the deal after it was placed with investors. It then yanked ratings on Freddie Mac’s $1.19 billion deal that JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) sold earlier this month that has yet to be completed. “The manner in which S&P took its action has severely eroded investor and issuer confidence in its ratings,” Morgan Stanley analysts led by Richard Parkus in New York wrote in a note yesterday, referring to the Goldman Sachs and Citigroup transaction. “Such an event is unprecedented within the CMBS market.”
  • Homeownership Falls to Lowest Since 1998. The U.S. homeownership rate fell to the lowest level since 1998 in the second quarter as stricter lending standards blocked purchases and foreclosures forced people out of their residences. The ownership rate through June was 65.9 percent, the lowest since the same rate 13 years ago, the U.S. Census Bureau said in a report today. The vacancy rate, the share of properties empty and for sale, was 2.5 percent, compared with 2.6 percent in the first quarter. The strictest mortgage standards in more than a decade are disqualifying potential buyers while owners are being evicted from homes after falling behind on loan payments, said Wayne Yamano, director of research at John Burns Real Estate Consulting in Irvine, California. Home purchases fell in June to a 4.77 million annual pace, the National Association of Realtors said July 20. If housing demand remains at that level, 2011 would have the fewest sales since 1997.
  • Turkey's Top Four Generals Resign After Erdogan Tension. Turkey’s top four generals stepped down, the first such mass resignation in the country’s history, amid tensions with Prime Minister Recep Tayyip Erdogan over alleged military plots to undermine his government. Chief of General Staff Isik Kosaner asked to leave because he “deemed it necessary,” the state news agency Anatolia reported from Ankara, citing no one. The chiefs of the army, air force and navy announced their resignations soon after, the NTV news channel reported. Those three were due to retire at the end of August, NTV said. The lira fell 1.3 percent and credit- default swaps rose 10 basis points to 193, data provider CMA said.
  • Denmark Debt Risk Soars on Concern Banking Crisis Is Deepening. The cost of insuring against default on Denmark’s sovereign debt soared to a record on concern the government will have to support the nation’s failing banks. Credit-default swaps on Denmark jumped 14 basis points today to 88, according to CMA. The contracts, which are up from 28 basis points on June 7, are the worst performing of any government in the past month. Denmark has allowed 11 banks to fail since 2008, putting pressure on the country’s remaining lenders to support a system- wide deposit insurance scheme. As many as 15 more of the nation’s lenders could default, Standard & Poor’s said yesterday. “Investors are concerned the contagion could spiral out of control,” said Suki Mann, head of credit strategy at Societe Generale SA in London. “Given the kind of concerns there are for the financial system in general, the S&P report wasn’t helpful. But it did highlight concerns the market does have.”
  • Merck(MRK) to Cut Up to 13,000 Jobs. Merck & Co., the second-largest U.S. drugmaker, plans to eliminate an additional 12,000 to 13,000 jobs by 2015, expanding a restructuring program to save as much as $4.6 billion a year. As much as 14 percent of the company’s 91,000 employees will lose their jobs, based on the size of the workforce at the end of last month.
Wall Street Journal:
MarketWatch:
CNBC.com:
  • Washington Is Annoyed at Wall Street's Lack of Panic. I just got off the phone with a source on Capitol Hill who has spent the past few days trying to convince Republicans to vote for a debt ceiling hike. He told me that the biggest obstacle he faces has been "market complacency." "Frankly, a bit of panic would be very helpful right now," he said. As he explained it, lots of people in Washington, D.C., expected that this would be a week marked by panic in the markets. Stocks would tank. Bonds would get clobbered. The dollar would do something dramatic. And all of this would help convince reluctant lawmakers that they had to reach a compromise on the debt ceiling. "We were following the script from 2008. When the market collapsed after TARP failed, that spooked everyone enough to get them to fall in line. We thought the same thing would happen this week," he said.
Business Insider:
 Zero Hedge:
 NY Post:
  • YouTube Finalizing Plans to Push Movie-Rental Business Into Mainstream. Walmart isn't the only one looking to push its streaming video movie service into the mainstream. Google's(GOOG) popular YouTube site is also finalizing plans to push its nascent paid movie rental business into the mainstream in the next few months, sources familiar with plans told The Post. One source said an announcement of such video-on-demand plans was expected before the end of the year.
New York Times:
  • Grassley Questions Education Agency's Ties to Hedge Funds. Senator Charles E. Grassley is examining whether Education Department officials disclosed confidential government information to hedge fund managers, including the well-known stock picker Steve Eisman. The inquiry stems from the agency’s recent efforts to overhaul the for-profit college industry. Expecting tough new rules in the wake of the controversy, Mr. Eisman and other hedge fund traders placed huge bets against the industry. In a letter this week, Mr. Grassley questioned the education secretary, Arne Duncan, about the agency’s ties to the hedge fund world and the lack of policies restricting contact with Wall Street players. “If it is indeed the case that Department of Education employees were on familiar terms with hedge fund short-sellers, this raises serious questions regarding the internal controls,” Mr. Grassley, Republican of Iowa, said in the letter. “My concerns center on the possibility that senior Department of Education staffers may have provided information to short-sellers during the time leading up to the public release” of new regulations.
  • Weak Earnings in Germany Raise Concerns of Slowing Growth.
Chicago Tribune:
  • Emanuel Projects $635.7 Million Budget Shortfall Next Year. Chicago's budget shortfall next year is expected to be $635.7 million, according to Mayor Rahm Emanuel’s preliminary budget documents viewed this morning by the Tribune. Without significant changes in how the city operates, that gap would widen in coming years to $741.4 million in 2013 and $790.7 million in 2014, the documents state. Much of the budget imbalance results from long-term union contracts with locked-in raises, rising health care costs for workers and increased borrowing in recent years that brought higher interest payments. The budget figures do not include shortfalls in city pension systems, which could add costs of $500 million or more annually in coming years. Absent changes in the pension systems or new revenue sources, that could result in a doubling of the city property tax, according to The Civic Federation, a non-partisan budget watchdog group.
Seeking Alpha:
USDA Foreign Agricultural Service:
Gallup:
  • Obama Approval Drops to New Low of 40%. (graph) President Obama's job approval rating is at a new low, averaging 40% in July 26-28 Gallup Daily tracking. His prior low rating of 41% occurred several times, the last of which was in April. As recently as June 7, Obama had 50% job approval. Obama's approval rating averaged 46% in June and was near that level for most of July; however, it has stumbled in the past few days, coinciding with intensification of the debt ceiling/budget battle in Washington.
The Hill:
Reuters:
  • Italy Economy Minister Admits "Mistakes", Won't Resign. Italian Economy Minister Giulio Tremonti on Friday dismissed speculation he would resign though he admitted making a mistake by using a luxury Rome apartment belonging to a former aide being investigated for corruption. "I have a job that is very difficult and involves a lot of effort, and I want to continue doing it, as best I can, in the interest of my country," Tremonti told Italian television, appearing both apologetic and defiant. "Yes, I have made mistakes, the only excuse is that I've worked a lot," he said. Widely seen as the guarantor of Italy's financial stability, Tremonti has faced growing pressure over the apartment, adding to market jitters that the country could be next in the firing line as the euro zone's debt crisis widens.
  • Toothless CDS Blamed for Failing to Stop Sovereign Contagion. Fears that credit default swaps would not provide protection against a sovereign default as previously hoped could be one of the reasons behind some of the recent sell-off in Eurozone peripheral sovereign cash bonds, bond market participants said this week.
  • Fed's Lockhart Says Bar High to Further Easing.
Vatan:
  • Iranian forces have seized three bases in northern Iraq used by a Kurdish forces affiliated with the Kurdistan Workers' Party, or PKK. The Iranian assault on PJAK, the Party for a Free Life in Kurdistan, began July 16 and has taken some of the group's bases close to the Kandil Mountains in Iraq. The action may have support from Turkish intelligence and special forces.
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Bear Radar

Posted by Gary .....at 2:19 PM

Style Underperformer:
  • Large-Cap Value (-.51%)
Sector Underperformers:
  • 1) Disk Drives -5.01% 2) HMOs -4.51% 3) Gold & Silver -1.71%
Stocks Falling on Unusual Volume:
  • DDD, USMO, AMAG, SLF, MFC, SSYS, NEM, CLMT, DISH, MRK, HES, BMY, VPRT, IPCM, STEC, DRIV, CTCT, NXPI, ABAX, TNAV, ACOM, NTGR, COLM, AGNC, BMC, QLGC, CSTR, SSYS, VECO, IBKC, HSIC, EZCH, VCI, VE, CMO, HTS, BHE, MOH, CNC, CMP, SWN, VSI, CVH, GTY, WCG, NTGR, CTCT, BSFT, RLD and DRIV
Stocks With Unusual Put Option Activity:
  • 1) STI 2) CX 3) SUN 4) UNH 5) NTAP
Stocks With Most Negative News Mentions:
  • 1) EGLE 2) VPRT 3) NWL 4) EWP 5) CNX
Charts:
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Bull Radar

Posted by Gary .....at 11:40 AM

Style Outperformer:
  • Mid-Cap Growth (+.09%)
Sector Outperformers:
  • 1) Homebuilding +1.46% 2) Hospitals +1.29% 3) Defense +.77%
Stocks Rising on Unusual Volume:
  • MXWL, IM, BMRN, VRTX, VOD, TI, MET, OMCL, FFBC, GBCI, SREV, ZOLL, TRLG, NTRI, JAZZ, DECK, SIMO, EXPE, VOD, WMGI, LPNT, QLIK, GPOR, CERN, N, RGC, NWL, AXL, EVEP, CYH, MSCC, QLIK, BMRN, CDNS, MDP, HRC, CHK and WLL
Stocks With Unusual Call Option Activity:
  • 1) NXPI 2) PWER 3) HLF 4) NLY 5) AGNC
Stocks With Most Positive News Mentions:
  • 1) SBUX 2) AAPL 3) GOOG 4) HOT 5) CERN
Charts:
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Friday Watch

Posted by Gary .....at 12:48 AM

Evening Headlines

Bloomberg:
  • Obama and Geithner May Regret Threats of Default: Caroline Baum. For Washington’s part, the short-term focus on raising the $14.3 trillion debt limit by the Treasury’s Aug. 2 deadline has become a diversion from the nation’s long-term fiscal problems. The federal government has to rein in the growth of its debt so that it becomes manageable in relation to the size of the economy. You wouldn’t know it from listening to the lecturer in chief Monday night. In his address to the nation, President Barack Obama resorted to many of his favorite divide-and-conquer techniques, more suited to warfare than politics, in an attempt to demonstrate he is rising above the fray.
  • Greek Investors May Shun Bailout as Losses Top 21%: Euro Credit. Greek bondholders may resist pressure to reinvest in the nation's securities as part of a bailout agreement as potential losses exceed the 21 percent estimated by the Institute of International Finance. JPMorgan Chase & Co. calculates the bonds may lose as much as 34 percent of their value, while Rabobank International anticipates losses of as much as 50 percent. That may be high enough to deter money managers from aiding the rescue, leaving European leaders to either foot a bigger share of the bill or compel private investors to chip in to meet a 90 percent participation goal. "Our view is that IIF yield assumption in calculating this is too low," said Pavan Wadhwa, JPMorgan's global head of interest-rate strategy in London. "As the market stands right now, the haircut banks will take if they sign up to the IIF proposal would be much higher than 21 percent. The plan might fail as it's going to be difficult to achieve the required 90 percent rollover rate that the IIF is hoping for."
  • China Regulator's Bad Loan Provision Inadequate. China’s banking regulator told lenders they haven’t set aside sufficient funds to cover losses on loans to local governments and ordered them to accelerate debt collection, a person with knowledge of the matter said. The lenders were told this month that they are lagging behind the China Banking Regulatory Commission’s schedule for revising the loan agreements on infrastructure projects, the person said, declining to be named because the information is confidential. The agency had asked banks to collect two repayments a year after construction is completed. The comments reflect persistent concerns that $1.7 trillion of lending to local governments may spur a wave of bad debts that could lead to the nation’s third banking bailout in less than two decades. As much of 30 percent of the credit may sour, Standard & Poor’s estimates, after a surge in lending that powered China’s recovery from the global financial crisis. “Concerns over China’s local government financing vehicle loans have resurfaced in recent weeks,” analysts at UOB Kayhian Investment Co. led by Sheng Nan in Shanghai, wrote to clients July 25. “There have also been talks of local governments overvaluing the land used as collateral for their LGFV loans.” Loans to local government financing vehicles, set up mainly to fund infrastructure projects such as roads and airports, may sour and become the biggest contributor to banks’ bad debts, Liao Qiang, a Beijing-based director of financial institution ratings for S&P, said in April. Standard Chartered Plc, which gets more than half its income from Asia, estimates that at least 4 trillion yuan of the loans -- and possibly much more -- will ultimately not be repaid by cash flows generated by the infrastructure projects, according to a June 29 report.
  • Crude Oil Falls, Heads for Weekly Decline, on U.S. Debt Ceiling Dispute. Oil fell, headed for the first weekly decline in five, on concern a failure to reach a deal on raising the U.S. debt limit may cause the nation to default, threatening the economy of the world’s biggest crude consumer. “We did see a build in inventories. If it becomes more of a trend rather than a one-off, that’s a worry.” Crude for September delivery fell as much as 50 cents to $96.94 a barrel in electronic trading on the New York Mercantile Exchange, and was at $97.08 at 11:35 a.m. Sydney time.
  • Bank of America(BAC) Sued by BlackRock(BLK), Calpers Over Countrywide Fraud Claims. Bank of America Corp. (BAC), the biggest U.S. lender, faces a new securities-fraud lawsuit filed by former Countrywide Financial Corp. investors including BlackRock Inc. that opted out of a $624 million settlement last year. Countrywide, acquired by Bank of America in 2008, misled shareholders about its finances and lending practices, according to the complaint filed today in federal court in Los Angeles. Plaintiffs including the California Public Employees’ Retirement System and funds managed by BlackRock, T. Rowe Price Group Inc. and TIAA-CREF are the largest group of those who rejected the deal, saying the terms were inadequate. “These prominent institutional investors made every effort to amicably resolve their claims for recovery of damages caused by the massive and pervasive fraud at Countrywide without filing formal litigation, but were unsuccessful,” their attorney, Blair Nicholas, a partner at Bernstein Litowitz Berger & Grossmann LLP, said in an e-mail. The investors hope to “maximize” their returns in a jury trial, he said.
  • Golden Era of Rock Star Traders Concludes. Over the past four decades no one has made more of a spectacle of risk than George Soros, whose Quantum fund famously bet $10 billion that the Bank of England would be forced to devalue the pound. Soros earned $1 billion on that trade and incalculable legend points. Now, Soros is going to stop risking other people’s money. By the end of this year, his Soros Fund Management LLC will have no outside customers for the first time in 42 years. The shift concludes a process that began in 2000, when Soros stopped accepting new investments, Bloomberg Businessweek reports in its Aug. 1 issue. Four years later he turned management of the company over to his sons Robert and Jonathan. On July 26, after months of debate, the three men decided to return the less than $1 billion of outsiders’ money Quantum still oversees and convert the firm into a family office to manage almost $25 billion for George, his family, and foundations. There’s a two-word explanation for closing what was once one of the world’s biggest hedge funds and consistently one of the best-performing --- with returns of about 30 percent annually in its first 30 years: Dodd-Frank. The law requires hedge funds to register with the Securities and Exchange Commission and provide information about customers, employees and assets. By returning outsiders’ money, Soros Fund Management escapes that rule and the loss of privacy that goes with it.
  • Libya Rebel Military Chief Younis, Qaddafi Defector, Is Killed, Jalil Says. Libyan rebel military chief Abdel Fattah Younis was shot and killed yesterday along with two of his aides, rebel president Mustafa Abdel Jalil said. Speaking in the rebel stronghold of Benghazi, Jalil told reporters in a televised news conference that a suspect had been arrested and an investigation is under way. He provided few details in a statement that left unclear whether the killings were the work of the Qaddafi regime or the result of a rift among the rebels. Earlier yesterday, rebel security had arrested Younis and two of his aides and brought them back from the front lines to Benghazi to be questioned about suspicions his family still had ties to Libyan leader Muammar Qaddafi, the Associated Press reported. Younis and his two aides, both colonels, were shot before they arrived for questioning, Jalil said, according to AP. Younis, Qaddafi’s former security minister, defected to the rebels in February and was leading the rebels’ military efforts.
  • Black Swan Crash Draws China Growth Questions: William Pesek. Here are five things Saturday’s tragedy says about China:
  • Perth's Falling Home Prices Outpace Australia. Property prices in Perth, the center of Australia’s mining boom, may fall further this year after slumping the most out of any state capital in the past 12 months, an Australian Property Monitors economist said. Perth home prices fell 5.8 percent in the 12 months to June to a median A$535,617 ($588,750), compared with the 2.4 percent national decline to A$546,121, Wilson said in a report yesterday. The city’s home prices fell 1.5 percent in the three months to June, compared with the national average of a 0.6 percent decline. Unit prices in the city have fallen 6.1 percent in the past 12 months. Perth property prices have stalled after doubling between 2004 and 2007 even as the economy booms on the back of the resource-rich Pilbara region.
  • Japan Industrial Output Rose Less Than Expected. Japan’s industrial production rose less than expected as companies from Nissan Motor Co. to Toyota Motor Corp. warned that a yen close to a post World War II high threatens to drag down exports. Factory output increased 3.9 percent in June from May, when it rose 6.2 percent, the biggest gain since 1953, the Trade Ministry said in Tokyo today. The median estimate of 31 economists surveyed by Bloomberg News was for a 4.5 percent gain.
  • Groupon May Cause 'Digestive Problems' at SEC, Ex-Official Says. Groupon Inc.’s approach to accounting may be “causing digestive problems” with the U.S. Securities and Exchange Commission, possibly delaying the initial public offering by one month, said Richard Sauer, a former official at the government agency. “It does sound like it’s getting some resistance and it sounds like it’s because of the pro forma number that the company is pushing so hard,” Sauer, who served as assistant director at the SEC from 1990 to 2003, said yesterday in a televised interview with “Bloomberg West.”
  • Debt Plan 'Triggers' Have History of Failure. As they struggle to reach an agreement over how to extend the nation’s debt limit and trim budget deficits, Republicans and Democrats are turning to an enforcement tool, called a “trigger,” with a history of failure.
Wall Street Journal:
 CNBC:
  • Starbucks(SBUX) Beats Expectations, Raises Outlook. Starbucks raised its fiscal year forecast above analysts' estimates as customers visited stores more often and shook off price increases in the latest quarter.
  • Investors Lift Equities, Shun Euro Zone. Investors raised their exposure to equities for the second month in a row in July, taking on some risk in their portfolios despite worries about both euro zone and U.S. debt stability, Reuters polls showed on Thursday. They also showed, however, that appetite for equities in the euro zone fell to levels not seen for at least a year, with Britain and Asia being the main beneficiaries. Surveys of 57 leading investment firms in the United States, Europe excluding the UK, Japan and Britain showed an average balanced portfolio holding 52.1 percent in stocks, up from 51.5 percent in June.
Business Insider:
 Zero Hedge: IBD:
Washington Post:
  • The Great Divide by Charles Krauthammer. Obama faces two massive problems — jobs and debt. They’re both the result of his spectacularly failed Keynesian gamble: massive spending that left us a stagnant economy with high and chronic unemployment — and a staggering debt burden. Obama is desperate to share ownership of this failure. Economic dislocation from a debt-ceiling crisis nicely serves that purpose — if the Republicans play along. The perfect out: Those crazy Tea Partyers ruined the recovery!
House Energy & Commerce Committee:
  • Lawmakers Introduce Bipartisan Legislation to Prevent U.S. Cement Plant Shutdowns and Job Losses. To protect thousands of American jobs and preserve domestic cement manufacturing, bipartisan members of the U.S. House of Representatives today introduced H.R. 2681, the Cement Sector Regulatory Relief Act of 2011. The proposal directs EPA to develop achievable and workable standards for the nation’s cement manufacturing facilities, replacing a series of complex rules affecting the sector that are projected to impose significant costs, and force plant shutdowns and job losses.
The Blaze:
Reuters:
  • Senator Shelby Says Soros Hypocrite for Reforms Dodge. Prominent Republican Senator Richard Shelby accused billionaire investor George Soros of hypocrisy on Wednesday for evading new hedge fund regulations he once publicly backed. Soros recently said he would return money to outsider investors and only manage his own family's funds to escape the Securities and Exchange Commission's new hedge fund adviser registration rules. "It appears that Mr. Soros talked up financial reform only to sell it short," Shelby told Reuters in a statement. "Don't be surprised to see his fellow Wall Street financiers follow suit. They'll use their political clout and legal muscle to sidestep Dodd-Frank, while their smaller competitors and businesses take the hit." The exemption allows family offices not only to avoid the registration requirements, but also to dodge a greater disclosure burden that requires big fund managers to turn over confidential data to help the SEC police systemic risk. Soros has been a staunch Democratic Party supporter who was among the earliest big-name supporters of President Barack Obama's presidential bid. Shelby's statement on Wednesday referred specifically to testimony Soros provided to Congress in November 2008 in which he said: "The entire regulatory framework needs to be reconsidered, and hedge funds need to be regulated within that framework." When pressed for details by lawmakers, Soros said he believed some hedge funds pose systemic risk and should be required to report additional information to regulators.
  • Samsung Profit Outlook Weakens on Chips, Mobiles Strong. Samsung Electronics Co is relying on the smartphone market to boost group profits after its flat screen unit reported a second quarter of losses and the mainstay chip business struggled. The South Korean technology conglomerate joins a host of global companies in warning that fragile consumer demand is hurting sales of TVs, flat screens, computers and semiconductors.
  • Nintendo Shares Dive on Crumbling Profit Outlook. Nintendo Co Ltd's shares plunged on Friday, wiping off as much as $5 billion of the videogame maker's market value, after it slashed its full-year profit forecast to the lowest level in 27 years.
  • Vistaprint(VPRT) Sees F12 Below Estimates, Shares Fall. Vistaprint NV forecast 2012 profit below market expectations citing higher investment expenses, sending the online design company's shares down about 30 percent in after-market trade.
  • Cerner(CERN) Q2 Profit Beats on Record Bookings. Health information technology company Cerner Corp posted a second-quarter profit that narrowly beat expectations, helped by strong bookings, and raised its full-year outlook.
Telegraph:
  • Global Slump Warnings if US Triggers 'Insane' Default. (US CDS Graph) A chorus of global banks has warned that Washington risks triggering a global slump and may suffer permanent loss of credibility by flirting with default on America's $14.3 trillion (£8.8 trillion) federal debt. "Default would be an act of collective insanity," said Willem Buiter, Cititgroup's chief economist. "Even if a default were cured promptly, it would severely dent the credibility of the US as a global financial player and the provider of the world's leading reserve currency. There would be an immediate repricing of the dollar and an increase in medium and long-term nominal and real interest rates. Asset, credit, and funding markets in the US and the world as a whole would likely suffer and a global recession would likely result, centred in the US, but not restricted to it." Mr Buiter said brinkmanship on the US debt ceiling had reached a point where tail risk had "morphed" into a serious possibility, with a 5pc likelihood that Washington will pull the trigger on a technical default.
  • China's Economic Miracle May Be About To Come Off The Rails by Jeremy Warner.
CCTV:
  • China Banking Regulatory Commission Chairman Liu Minkang said banks can take a 30% to 50% decline in property prices, according to a report on the Sina.com website.
21st Century Business Herald:
  • China's railway ministry plans to withdraw from regional rail investments partly because of heavy debt, citing three people familiar with the situation. The ministry had a debt-to-equity ratio of 58.24 percent as of the first quarter of the year, compared with 46% in 2008. Tight credit and the removal of preferential interest rate loans may also cause the ministry to pull out of investments.
China Daily:
  • Adidas, Nike and Louis Vuitton were the biggest victims of trademark infringement among foreign brands in China based on a crackdown on intellectual property violations from October to mid-June, China Daily cited Fu Shuangjian, deputy director of the China's State Administration for Industry and Commerce, as saying. Trademark infringement at home and abroad has continued unabated after the nation's largest crackdown on intellectual property violations, citing the administration.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (IM), target $24.
CSFB:
  • Reiterated Outperform on (POT), raised estimates, boosted target to $74.
Night Trading
  • Asian equity indices are -1.0% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.50 -1.5 basis points.
  • Asia Pacific Sovereign CDS Index 117.50 -.5 basis point.
  • S&P 500 futures -.56%.
  • NASDAQ 100 futures -.45%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (AMGN)/1.28
  • (NEM)/1.00
  • (MRK)/.95
  • (WY)/.08
  • (ACI)/.58
  • (AB)/.40
  • (B)/.36
  • (NWL)/.42
  • (ITT)/1.16
  • (HMSY)/.40
  • (AXL)/.44
  • (CVH)/.76
  • (PPC)/-.21
Economic Releases
8:30 am EST
  • Advance 2Q GDP is estimated to rise +1.8% versus a +1.9% gain in 1Q.
  • Advance 2Q Personal Consumption is estimated to rise +.8% versus a +2.2% gain in 1Q.
  • Advance 2Q GDP Price Index is estimated to rise +2.0% versus a +2.0% gain in 1Q.
  • Advance 2Q Core PCE is estimated to rise +2.3% versus a +1.6% gain in 1Q.
  • The 2Q Employment Cost Index is estimated to rise +.5% versus a +.6% gain in 1Q.
9:45 am EST
  • The Chicago Purchasing Manager for July is estimated to fall to 60.0 versus 61.1 in June.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for July is estimated to rise to 64.0 versus 63.8 in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, NAPM-Milwaukee report and the (CA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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.
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Thursday, July 28, 2011

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, US Debt Ceiling Concerns, Global Growth Worries, Emerging Markets Inflation Fears

Posted by Gary .....at 4:05 PM

Broad Market Tone:
  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 22.67 -1.35%
  • ISE Sentiment Index 111.0 +2.78%
  • Total Put/Call .90 -19.19%
  • NYSE Arms .92 -35.35%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.44 -.68%
  • European Financial Sector CDS Index 157.24 +7.49%
  • Western Europe Sovereign Debt CDS Index 285.83 +.82%
  • Emerging Market CDS Index 211.96 -1.71%
  • 2-Year Swap Spread 22.0 +1 bp
  • TED Spread 18.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 253.0 -1 bp
  • China Import Iron Ore Spot $175.40/Metric Tonne +.23%
  • Citi US Economic Surprise Index -86.20 +3.0 points
  • 10-Year TIPS Spread 2.45% +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +24 open in Japan
  • DAX Futures: Indicating -11 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Technology, Retail and Biotech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 is trading at session lows, hovering below its 50-day moving average, despite better US economic data, recent equity losses, lower food prices and less financial sector pessimism. On the positive side, I-Banking, Tobacco, Road & Rail, Software and Oil Service shares are especially strong, rising .75%+. Oil is falling -.2%, copper is rising +.58% and the UBS-Bloomberg Ag Spot Index is down -1.51%. The Portugal sovereign cds is falling -4.68% to 912.82 bps and the Ireland sovereign cds is falling -7.42% to 776.31 bps. On the negative side, Airline, Education, Construction, Telecom, Networking, Disk Drive and Homebuilding shares are under pressure, falling more than -.75%. Cyclicals are underperforming again. The industrials(ETF:XLI), after breaking down through their 200-day moving average on volume yesterday, are under pressure again today. The Networking Sub-Index is down -22.4% from its April 27th high. Rice is falling -2.4% today, but is still near a multi-year high, soaring about +27.0% in less than 3 weeks. The US price for a gallon of gas is +.01/gallon today to $3.71/gallon. It is up .57/gallon in less than 5 months. The Italy sovereign cds is jumping +4.67% to 298.88 bps, the France sovereign cds is rising +2.11% to 118.47 bps, the Belgium sovereign cds is rising +3.07% to 190.69 bps and the US sovereign cds is gaining +1.9% to 63.67 bps. The Italy sovereign cds has soared +84 bps in 5 days. The German, Spain and French sovereign cds are also near record highs. The Eurozone Financial Sector CDS Index is approaching record highs, as well. India's Sensex continues to trade very poorly, falling another -1.21% last night and is now down -11.21% ytd. German and French stocks fell -.86% and -.57%, respectively today, despite US stocks rallying hard off the open. The AAII % Bulls fell to 37.84, while the % bears rose to 31.42 this week, which is a negative considering current headwinds. The tone of the market is poor again today as volume picks up after the breach of key technical levels yesterday. Some US politicians efforts to spook the equity and bond markets continue to have some success, however I still suspect that a larger portion of recent stock losses are the result of ongoing European debt concerns, lowered forward earnings guidance and emerging market growth/inflation worries than most investors perceive. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, global growth worries, US debt ceiling concerns, earnings worries and emerging markets inflation fears.
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