Friday, August 26, 2011

Friday Watch


Evening Headlines


Bloomberg:

  • Japan's Kan Poised to Resign as Bills Pass. Japan’s parliament passed two pieces of legislation that Prime Minister Naoto Kan said were conditions for him to resign as early today, setting up a succession battle that will play out by early next week.
  • Airlines Scrub 180 Flights Before Hurricane Irene U.S. Landfall. American Airlines, JetBlue Airways Corp. and other large carriers scrubbed about 180 flights ahead of Hurricane Irene’s U.S. landfall and waived rebooking penalties to allow passengers to change flights. Cancellations totaled about 154 at AMR Corp.’s American and its American Eagle regional unit near the Caribbean and Bahamas, said Ed Martelle, a spokesman. JetBlue reported dropping a dozen flights, US Airways Group Inc. had eight, Delta Air Lines Inc. had four and United Continental Holdings Inc. had one.
  • Syria Forces Kill 25 Protesters in Past Two Days. Syrian security forces have killed at least 25 protesters in the past two days as activists and opposition groups prepare for a conference aimed at presenting a united front against President Bashar al-Assad’s rule. At least 13 anti-government demonstrators were shot dead yesterday in the central city of Homs, the eastern town of Deir al-Zour and the suburbs of the capital, Damascus, Mahmoud Merhi, head of the Arab Organization for Human Rights, said by phone. At least 12 people were killed on Aug. 23 across the Hama governorate, Homs and the northern province of Idlib, he said.
  • U.S. May Snap Up Qaddafi's Missiles in Mali Black Market to Soak Up Supply. The fall of Libyan dictator Muammar Qaddafi has touched off a race to secure his arsenal of portable, terror-ready weapons such as shoulder-fired anti- aircraft missiles, and part of the solution may be for the U.S. and allies to go out and buy them. There is evidence that a small number of Soviet-made SA-7 anti-aircraft missiles from Qaddafi’s arsenal have reached the black market in Mali, where al-Qaeda in the Islamic Maghreb is active, according to two U.S. government officials not authorized to speak on the record. The disintegration of Qaddafi’s four-decade dictatorship has created a business opportunity for looters trafficking in the war-stricken country’s missiles, which would enable terrorists to attack military or civilian aircraft.
  • For Texas 'Miracle,' Cut the Cost of Business: Brian Barry. Unemployment is high across the U.S., but some states are better than others at creating jobs. Texas Governor Rick Perry cast a spotlight on this when he entered the presidential race. His fast-growing state accounts for as much as half of all net U.S. jobs since mid-2009. Texas is part of a broader pattern, from which all states can learn. Research shows that states keeping costs low for business have enjoyed better job growth during the past couple of decades. The low costs appear to be more important than other advantages often associated with higher spending, including infrastructure and an appealing quality of life. Those findings emerge in a recent paper by Jed Kolko and Marisol Cuellar Mejia of the Public Policy Institute of California, along with David Neumark of the University of California at Irvine. The researchers compared states by digging into almost a dozen indexes that rank business- climate attractiveness.
  • UN Authorizes U.S. to Release $1.5 Billion to Libyan Rebels. The United Nations Security Council today authorized the Obama administration to release $1.5 billion in frozen Libya assets to help the rebels' National Transitional Council deliver aid and services. The action followed approval by South Africa, a Security Council member that held up the release out of concern that the decision would signify recognition of the NTC as the government of Libya.
  • Fed Pledge Inflates Hong Kong's Misery With Currency Peg: Chart of the Day. A U.S. pledge to keep interest rates at record lows through mid-2013 is no boon for Hong Kong, where a “misery index” has climbed the most in the world because of inflation fueled by cheap funding. The gauge, which sums the jobless rate and the annual increase in consumer prices, jumped 570 basis points in the 12 months through July to the highest level in more than 15 years. It was the biggest gain of 56 countries tracked by Bloomberg. “Inflation in the city will continue to accelerate because of the Fed’s pledge to keep rates low,” said Raymond Yeung, a senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “This will only heighten politicians’ demands for a change to the currency peg.” Yeung says a faster pace of gains by the yuan will also fuel inflation in the city.
  • Short Sellers May Spend Another Month on European Stock Market Sidelines. Investors may face another month of short-selling curbs in Europe after French, Italian and Spanish financial regulators extended temporary bans introduced this month in a bid to stem market volatility. Spain and Italy extended their bans through Sept. 30, regulators in both countries said in a statement. France’s Autorite des Marches Financiers said its ban could last as long as Nov. 11. The regulators all said they might lift the bans on short selling of financial stocks when the market stabilizes. The ban didn’t prevent an 8 percent drop in European bank stocks since it was imposed on Aug. 12 after shares of lenders including Societe Generale SA hit their lowest levels since the credit crisis of 2008.
Wall Street Journal:
  • Bailout for Greece Falters Over Demand for Collateral. Euro-zone policy makers on Thursday appeared no nearer to settling a dispute over Finland's collateral demands in exchange for participating in a €110 billion ($158.6 billion) bailout for Greece, raising concerns that the Mediterranean nation may default. Markets have grown more worried about the potential for a Greek debt default amid an apparent lack of progress in resolving the collateral issue this week. Finland, meanwhile, shows no sign of backing down.
  • At Least 53 Killed in Mexico Casino. In what Mexican officials have called an "act of terror," a half dozen gunmen burst into a casino in Mexico's industrial capital of Monterrey Thursday, sprayed the place with gasoline, and started a fire in the bingo section, killing at least 53 people. Speaking to Monterrey's leading newspaper El Norte, Nuevo León Gov. Rodrigo Medina said that at least 53 people had been killed in the attack, making it the bloodiest attack suffered by this prosperous city, which has been rocked by spiraling drug violence in the last year. Monterrey is the capital of Nuevo Leon state.
MarketWatch:
CNBC:
  • China's Hu Tells Sarkozy Concerned About Euro. China hopes that Europe will take steps to protect its investments there, President Hu Jintao told the French President Nicolas Sarkozy on Thursday, nonetheless voicing confidence in the euro and vowing to keep investing in it.
  • Chance of Recession Is as High as 80%: Study. A plunge in recent economic data puts the probability of a double-dip recession above 80 percent, according to modeling by Bank of America Merrill Lynch released Wednesday.
  • JPMorgan(JPM) to Pay $88 Million for Violating US Sanctions. JPMorgan Chase has agreed to pay $88.3 million to settle potential civil liability for apparent violations of a wide range of U.S. sanctions, the U.S. Treasury department announced Thursday.
Business Insider:
Zero Hedge:
IBD:
NY Times:
Stormpulse:

CNN:
  • 9/11 Ceremony Won't Include Religious Leaders or Formal Prayers. As the city of New York prepares to remember the 10th anniversary of 9/11, religious leaders are raising concerns over the lack of clergy participating in the anniversary events. "Utterly disappointed and surprised," Fernado Cabrera a New York City councilman and the pastor of New Life Outreach International church in the Bronx, said over the decision not to include any clergy in the ceremony. "There's certain things that government cannot do, and answering questions of meaning of 'Why are we going through this?' and 'Where am I going to get strength from?' - those are existential questions that can only be answered from a spiritual aspect," Cabrera said. "I'm telling you I saw it first hand, the power of prayer," he added of his time at ground zero on September 11, 2001. Cabrera said he reached out to the mayor's office and was told there would be no prayer in this year's ceremony. He has started a petition on Facebook to change that.
  • Halliburton(HAL) Adding 11,000 Jobs, Mostly in North Dakota.
MobileBeat:
CBSNews:
  • Former Bush Spokeswoman: Rick Perry Should "distance himself" from George W. Bush. Dana Perino, who was White House Press Secretary under President George W. Bush, said on Fox News Thursday that Republican presidential candidate Rick Perry should "distance himself" from her former boss. "Rick Perry is smart to distance himself from George W. Bush if he wants to win the Republican nomination and, eventually, the presidency," Perino said.
Neal Boortz:
  • Illinois Increases Taxes, Loses Jobs. How many times have I told you that taxes influence behavior? People want to keep more of what they earn. It’s as simple as that. So it doesn’t take a rocket scientist to figure this one out. Since the official start of the “recovery,” Illinois employers were moderately adding jobs for months. That all stopped in January 2011. Since January, Illinois started losing jobs. Big time. In fact, in July 2011, Illinois lost more jobs than any other state in the nation. It lost 24,900 non-farm payroll jobs in July as its unemployment rate climbed for the third straight month to 9.5%. So Illinois was steadily adding jobs and then .. bam! .. it is losing more jobs than any other state in the nation. What happened? Tax increases.
Politico:
  • AFL-CIO Head: Labor to Ditch Democrats. The growing rift between labor and their Democratic allies was on full display Thursday, as AFL-CIO President Richard Trumka told reporters that labor groups are planning to scale back their involvement with the Democratic Party in advance of the 2012 elections. Going forward, Trumka said, the labor movement will build up its own political structures and organizations rather than contribute to and depend on the Democratic Party’s political operation.
Reuters:
  • Spain Government, PP Agree to Deficit Limit in Constitution. The Spanish government said on Friday it had reached an agreement with the main opposition People's Party over plans to reform the constitution and establish limits for the public deficit and debt. The amendment to the constitution will be made by implementing a law which will include a cap on the country's deficit and debt. The law will have to be approved before June 30, 2012, the government said in a statement early on Friday morning.
  • Brevan Howard Profits From Market Turmoil - FT. Brevan Howard, one of the Europe's biggest and most successful hedge fund managers, has made close to $1.5 billion over the past three weeks on the back of turmoil in the global markets, the Financial Times reported on Friday.
  • Investors Return to US Equity Funds - Lipper.
  • Pandora Media(P) Revenue Beats on Strong Ad Sales. Online radio service Pandora Media Inc reported results that beat expectations on strong advertising sales in its fiscal second quarter. Pandora shares rose 5.9 percent to $13.20 in after-hours trading following the earnings report on Thursday.
  • Micros Systems(MCRS) Q4 Tops Street. Micros Systems Inc , which provides information systems to the hospitality industry, posted quarterly results ahead of market estimates, helped by double-digit revenue growth in its services business.Shares of the Columbia, Maryland-based company, which have lost 18 percent of their value over the last one month, were up 4 percent in trading after the bell.
  • Bank of America(BAC) Gives Buffett a $3 Billion Gift. When Bank of America Corp agreed to sell $5 billion of preferred shares to Warren Buffett, it gave the Oracle of Omaha a $3 billion gift with the deal. The 700 million warrants attached to the preferred share sale were worth $3.17 billion when the deal was crafted, said Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.
  • OmniVision(OVTI) Sees Q2 Below Estimates, Shares Dive. OmniVision Technologies Inc forecast second-quarter results well below estimates, hinting at a loss of market share in its key smartphone image sensor business, sending its shares down 25 percent in extended trade.
Telegraph:
  • Greece Forced to Tap Emergency Fund. Greece has been forced to activate an obscure emergency fund for its banks because they are running short of collateral that is acceptable to the European Central Bank (ECB). In a move described as the "last stand for Greek banks", the embattled country's central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night. Raoul Ruparel of Open Europe told The Telegraph: "The activation of the so-called ELA looks to be the last stand for Greek banks and suggests they are running alarmingly short of quality collateral usually used to obtain funding." He added: "This kicks off another huge round of nearly worthless assets being shifted from the books of private banks onto books backed by taxpayers. Combined with the purchases of Spanish and Italian bonds, the already questionable balance sheet of the euro system is looking increasingly risky.
Xinhua:
  • The yuan is not ready for rapid appreciation because of the "immaturity" of the Chinese economy, citing Nobel laureate Myron Scholes in an interview. The Asian country still depends on exports as consumption is too low to support the economy, Scholes said.
Financial News:
  • China should urge the U.S. government to reduce its fiscal deficit as part of measures to protect China's foreign-exchange reserves, citing Wang Tianlong, a researcher at the China Center For International Economic Exchanges. China should accelerate the resolution of local government debt risks to prevent "concentrated outbreaks" of such risks, the report said, citing Wang.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (P), target $25.
ThinkEquity:
  • Rated (BRCM) Buy, target $40.
Night Trading
  • Asian equity indices are -1.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 163.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 152.75 -4.25 basis points.
  • FTSE-100 futures +.11%.
  • S&P 500 futures +.57%.
  • NASDAQ 100 futures +.59%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (TIF)/.70
Economic Releases
8:30 am EST
  • 2Q GDP is estimated to rise +1.1% versus a prior estimate of a +1.3% gain.
  • 2Q Personal Consumption is estimated to rise +.2% versus a prior estimate of a +.1% gain.
  • 2Q GDP Price Index is estimated to rise +2.3% versus a prior estimate of a +2,3% gain.
  • 2Q Core PCE is estimated to rise +2.1% versus a prior estimate of a +2.1% increase.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for August is estimated to rise to 55.8 versus a prior estimated of 54.9.
Upcoming Splits
  • (CLW) 2-for-1
Other Potential Market Movers
  • Fed Chairman Bernanke's speech could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Thursday, August 25, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Tech Sector Weakness, Global Growth Worries, Emerging Markets Inflation Fears


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 38.31 +8.11%
  • ISE Sentiment Index 89.0 -8.25%
  • Total Put/Call 1.40 +19.66%
  • NYSE Arms 1.03 +56.34%
Credit Investor Angst:
  • North American Investment Grade CDS Index 124.0 -2.70%
  • European Financial Sector CDS Index 238.32 -1.73%
  • Western Europe Sovereign Debt CDS Index 301.50 +1.50%
  • Emerging Market CDS Index 299.46 -1.32%
  • 2-Year Swap Spread 30.0 +1 bp
  • TED Spread 32.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 202.0 -2 bps
  • China Import Iron Ore Spot $178.30/Metric Tonne +.11%
  • Citi US Economic Surprise Index -68.70 +1.0 point
  • 10-Year TIPS Spread 2.07% +6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -40 open in Japan
  • DAX Futures: Indicating -40 open in Germany
Portfolio:
  • Lower: On losses in my Tech, Medical, Biotech and Retail sector longs
  • Disclosed Trades: Added (IWM)/(QQQ) hedges and added to my (EEM) short, then covered some of them
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 falls meaningfully despite the Buffett/(BAC) deal, rally in (AAPL) shares off the lows, stock gains in Asia overnight and ahead of Bernanke's speech tomorrow. On the positive side, Coal and Homebuilding shares are especially strong, rising over 1.0% on the day. (XLF) has traded very well throughout the day again. Copper is gaining +2.12% and Lumber is rising +.43%. The Japan sovereign cds is falling -3.77% to 108.59 bps and the Belgium sovereign cds is declining -4.9% to 239.83 bps. On the negative side, Energy, Steel, Software, Disk Drive, Networking, Wireless, Biotech, Drug, Hospital, HMO, Restaurant, Gaming, Education, Airline and Tobacco shares are especially weak, falling more than -1.75%. Small-caps are underperforming. Tech shares have lagged throughout the day again. Gold is up +.19%. Oil and food are flat despite stock losses. Rice is still near a multi-year high, rising +26.5% in about 8 weeks. The US price for a gallon of gas is +.01/gallon today to $3.58/gallon. It is up .44/gallon in about 7 months. The Greece sovereign cds is rising +3.50% to 2,302.67 bps, the France sovereign cds is climbing +1.16% to 165.83 bps, the Portugal sovereign cds is gaining +.32% to 1,040.56 bps and the Italy sovereign cds is gaining +.24% to 377.33 bps. The TED spread is at the highest since July 2010. The Eurozone Financial Sector CDS Index is still very near it recent all-time high. The Greece sovereign cds has soared +777 bps since July 22. The Citi Eurozone Economic Surprise Index has plunged -109 points in about 3 weeks to -102.90. Despite gains in most of the rest of Asia overnight, India equities fell another -.85%. They are now down -21.3% ytd and right back to their lows hit 4 days ago. The abrupt plunge in German stocks this morning triggered US equity weakness. Comments out of Germany that the EFSF is currently large enough may have been one of the main catalysts. Germany's DAX is now down -19.2% ytd and continues to trade very poorly. The ongoing rise in key cds remains a large negative. The AAII % Bulls rose to 36.44 this week, while the % Bears rose to 40.96, which is a negative given the current macro backdrop. S&P 500 forward earnings estimates are still at record levels despite the recent sharp deceleration in global economic activity, which could lead to a significant increase in negative earnings pre-announcements over the coming weeks. It is a big negative that the relative strength in (XLF) today has not helped the broad market at all. The fact that the Naz is near its lows(-45) with market leader (AAPL) rallying +17 points off its pre-opening low is also a big negative. I still believe (AAPL) will outperform the market substantially over the intermediate/long-term and would add to my long position again on any extreme market-related weakness in the shares. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, tech sector pessimism, global growth worries, more shorting, technical selling and emerging market inflation fears.

Today's Headlines


Bloomberg:
  • Stocks Fall After Selling Deluge in Germany. Stocks fell after Germany’s DAX Index (DAX) sank amid concern regulators in the European nation may impose more restrictions on short selling. The dollar, Treasuries and Bank of America Corp.’s shares rallied. The Standard & Poor’s 500 Index dropped 1.6 percent at 12:36 p.m. in New York. The Stoxx Europe 600 Index lost 1.2 percent after rising as much as 1.1 percent. The DAX plunged 4 percent in about 15 minutes before ending the day with a 1.7 percent retreat. Investors bet Germany would ban short selling, said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management Inc. in Chicago. Germany’s Finance Ministry said the speculation was incorrect. After European markets closed, French, Italian and Spanish stock-market regulators decided to extend temporary bans on short selling introduced this month. U.S. equities slumped after American jobless claims increased.
  • Jobless Claims in U.S. Rise to 417,000. Claims for U.S. unemployment benefits unexpectedly rose last week, pushed up for a second time by a labor dispute at Verizon Communications Inc. (VZ) Jobless claims climbed by 5,000 to 417,000 in the week ended Aug. 20, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Today’s data showed the four-week moving average, a less- volatile measure than the weekly figures, increased to 407,500 last week from 403,500. The unemployment rate among people eligible for benefits fell to 2.9 percent in the week ended Aug. 13 from 3 percent, today’s report showed.
  • Northeast Preps for Biggest Hurricane Threat Since 1985. New York, New Jersey and Delaware officials are preparing for the possibility of mass evacuations as Hurricane Irene threatens to wreak the most havoc in the Northeast since Hurricane Gloria in 1985.
  • Volksbanken Won't Pay State Dividend, May Face Nationalization. Oesterreichische Volksbanken AG, the Austrian lender that failed last month's European stress test, may face nationalization after missing a dividend payment on state capital for the third time in as many years. "Due to the difficult economic situation and the implementation of the company strategy for 2015, a payment of dividends" for non-equity participation shares can't be met, Austria's fourth-biggest lender said in a statement today.
  • CFTC May Adopt Final Speculation Limits as Early as Sept. 22. The U.S. Commodity Futures Trading Commission may vote as early as Sept. 22 to complete Dodd-Frank Act limits on speculative trading in commodities such as oil, natural gas and wheat, CFTC Chairman Gary Gensler said. The so-called position-limits rule and regulations governing derivatives clearinghouses may be voted on by commissioners next month, Gensler told reporters today during a CFTC economic research conference in Washington. The agency has a rulemaking meeting scheduled for Sept. 22. “I don’t know if it will be that meeting or early October,” Gensler said. “I feel very good about the progress staff has made.”
  • Crude Oil Futures Advance in New York, Reversing Earlier Decline. Crude oil advanced in New York, rebounding from an earlier decline. Crude for October delivery gained 64 cents, or 0.8 percent, to $85.80 a barrel at 1:10 p.m. on the New York Mercantile Exchange. Brent oil for October settlement rose $1.03, or 0.9 percent, to $111.18 a barrel on the London-based ICE Futures Europe exchange.
  • Buffett to Host Obama Fundraiser in New York. Billionaire Warren Buffett plans to hold a Sept. 30 fundraiser in New York City to benefit President Barack Obama’s re-election bid, according to two Democratic officials not authorized to speak publicly about the event.
  • Citigroup(C), UBS(UBS) Cut Global Economic Growth Outlook as Jackson Hole Starts. Central bankers began arriving for their annual policy symposium in Jackson Hole as economists from Citigroup Inc. to UBS AG cut forecasts for global growth and predicted interest rates will stay on hold until at least 2013. Citigroup said the world economy will grow 3.8 percent this year and 4 percent in 2012 in purchasing power parity terms, down from 4.2 percent and 4.4 percent. UBS cut its estimate for expansion next year to 3.3 percent from 3.8 percent and Societe Generale SA pared its forecast to 3.9 percent from 4.6 percent.
Wall Street Journal:
  • Greek Default Fears Rise. Euro-zone policy makers appeared nowhere near settling a dispute Thursday over Finland's collateral demands in exchange for participating in a €109 billion ($157.1 million) bailout for Greece, raising concerns the Mediterranean nation may default. Markets have grown more worried about the potential for a Greek debt default amid a lack of progress in resolving the collateral issue this week, according to a person familiar with the situation. Finland, meanwhile, shows no sign of backing down. Yields on Greek two-year bonds rocketed to a record of over 43% Thursday, according to Tradeweb, and the cost of insuring Greek government bonds against default also rose sharply. Greek five-year sovereign credit-default swaps were 1.37 percentage points wider at 22.75 percentage points, according to Markit. Euro-zone governments are looking into alternative forms of collateral after a cash deal reached earlier between Greece and Finland was rejected by key member countries, including Germany and the Netherlands. The collateral dispute, if not resolved soon, could derail a second bailout package for Greece agreed by euro-zone leaders on July 21. Without support from all 17 euro-zone countries, no funds can be released, while changes to the European Financial Stability Facility, the currency bloc's bailout fund, can't go forward either. "It seems that a possible outcome is either collateral for all member states or no country will get it," said another person, who remains hopeful a solution can be found by the end of Friday. Finland said Thursday that it continues discussions with Greece and other euro-zone countries to find a solution. Officials refrained from further comment. "The issue has become so politicized that no one here at the Finance Ministry wants to talk about it at the moment," said Anita Sihvola, spokeswoman for the Finnish finance ministry. On Wednesday, Finance Minister Jutta Urpilainen reiterated that Finland won't take part in the Greek bailout unless it obtains collateral.
MarketWatch:
Business Insider:
Zero Hedge:
NY Post:
TheStreet.com:
  • Bank of America(BAC), Buffett Deal Stinks: Bove. Bank of America(BAC_)'s $5 billion preferred equity investment from Warren Buffett's Berkshire Hathaway(BRK.A_) is "a terrible, terrible deal," according to Rochdale Securities analyst Dick Bove.
Seeking Alpha:
  • Buffett's Deal With Bank of America(BAC) Is Absolutely Terrible... for Bank of America (BAC) that is. For Warren Buffett, this is easily one of the most ruthless, aggressive, and ultimately profitable deals he's struck on behalf of Berkshire Hathaway (BRK.A, BRK.B) since the financial crisis began. Buffett always laments the difficulty in finding good investment opportunities when you're running a company the size of Berkshire, but as this deal shows, sometimes it pays to be a fat cat that can toss around $5 billion at a moment's notice. To demonstrate just how ridiculously good this deal is for Berkshire, let's compare it to another one of Buffet's famous bailouts that has paid off handsomely for his company: his investment in Goldman Sachs (GS).
Nasdaq:
  • Pimco CEO: Bernanke Must Avoid 'QE3' In Friday Speech - FT. The head of bond-fund giant Pimco says Federal Reserve Chairman Ben Bernanke should avoid any suggestion the U.S. central bank intends to pursue new purchases of Treasury Bonds and instead use a much-anticipated Friday speech to press for economic reforms. Mohamed El-Erian, in an opinion essay published Thursday on the Financial Times' website, wrote that Bernanke would likely encounter little political support for extending the Fed's policy of "quantitative easing," dubbed "QE3." Moreover, "expectations are far ahead of what he can reasonably deliver in terms of economic outcomes," El-Erian added. The chief executive of Pacific Investment Management Co. said Bernanke's speech Friday at a Fed event in Wyoming could best be used as a forum from which to launch fresh efforts to fix the struggling U.S. economy." Rather than embark on another policy initiative ('QE3') with questionable net benefits, it would be better for Mr. Bernanke to use his Jackson Hole speech to reframe the national policy debate and, in the process, set the stage for President Barack Obama's key economic announcements on September 5. "The time has come for the American policy narrative to be much more explicit about the structural challenges facing the country and, critically, set the stage for proposing to Congress a comprehensive package of self-reinforcing reforms. Mr. Bernanke can facilitate this by using his Jackson Hole remarks as the warm-up act for Mr. Obama's critical speech on the economy next month. Anything beyond this would run the risk of the Fed building another costly bridge to nowhere."
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -24 (see trends).
Handelsblatt:
  • Finland's agreement with Greece on collateral to cover its bailout contribution won't be accepted by other euro region member-states, citing people familiar with the matter. The agreement is "off the table," German Finance Minister Wolfgang Schaeuble said at a meeting of the parliamentary groups of the Christian Democratic Union and its Christian Social Union sister party, according to people who attended.
Confidencial:
  • Spain's government plans to reintroduce a wealth tax scrapped in 2008, and increase the minimum threshold at which the levy applies to 1.5 million euros. The Cabinet plans to adopt the measure at its meeting tomorrow.
Le Echos:
  • European banks are more vulnerable to the debt crisis than their U.S. counterparts because their capital levels are smaller, citing PIMCO's Mohamed El-Erian. Europe's banks didn't raise capital during the relative calm of 2010, and the region's lenders also carry higher debt and lower deposits in the euro area's "peripheral" countries, he said in an interview. The ECB has been contaminated by increasing amounts of the debt of the region's troubled countries and has now become an inherent part of the euro zone's problems, he said. The solution to Europe's debt crisis may mean choosing between saving the problem countries on the euro zone's periphery and preserving its solid core, he said.
Xinhua:
  • China will continue macro-control policies on the property sector "without changing the direction or loosening the policies," Zhang Ping, head of the National Development and Reform Commission, was cited as saying.
  • China's head of the National Development and Reform Commission Zhang Ping said it will be "difficult to keep the consumer price index growth below the government's target this year."
  • Inflationary expectations in China may continue to grow and prices are likely to remain high, making price-control targets harder to achieve, citing a government official. "Global liquidity will remain abundant in the short term and imported inflationary pressure has not eased by much," said Zhang Ping, head of the National Development and Reform Commission, China's top economic planner, in a report to the National People's Congress.
China News:
  • China will strictly control the size of local government debt, citing Chinese Finance Minister Xie Xuren.

Bear Radar


Style Underperformer:

  • Mid-Cap Value (-1.60%)
Sector Underperformers:
  • 1) Airlines -2.81% 2) Networking -2.51% 3) Insurance -2.31%
Stocks Falling on Unusual Volume:
  • AVAV, BP, VOD, RUE, PDCO, CISG, SHPGY, URBN, GOLD, CPLA, CY, MCRS, INFY, NIHD, TWGP, GSM, AGNC, RNOW, MDVN, NAVG, ULTI, GES, CSS, CPK, MTK, EWG, JXI, LFC, HRL, IVR, EXPR, ATLS, SPW and SLH
Stocks With Unusual Put Option Activity:
  • 1) PSS 2) HON 3) HAL 4) SCHW 5) MOO
Stocks With Most Negative News Mentions:
  • 1) UTHR 2) LDK 3) CSUN 4) SCHW 5) QLGC
Charts:

Bull Radar


Style Outperformer:

  • Small-Cap Value (-.91%)
Sector Outperformers:
  • 1) Banks +1.38% 2) Gold & Silver +.39% 3) Coal +.29%
Stocks Rising on Unusual Volume:
  • C, BCS, NSANY, DEO, ATPG, CHU, NGD, PANL, BECN, CAVM, PSS, SIG and HEI
Stocks With Unusual Call Option Activity:
  • 1) XHB 2) AONE 3) PSS 4) VMED 5) GOLD
Stocks With Most Positive News Mentions:
  • 1) FFIV 2) TTC 3) EME 4) MDT 5) BAX
Charts:

Thursday Watch


Evening Headlines


Bloomberg:

  • Steve Jobs Resigns as Apple(AAPL) CEO. Apple Inc. (AAPL) Chief Executive Officer Steve Jobs, who transformed the company he started at age 21 from a personal-computer also-ran into the world’s largest technology company, resigned. Jobs, who will become chairman, was on medical leave since Jan. 17 after combating a rare form of cancer since 2003 and surviving a liver transplant in 2009. He is succeeded by Chief Operating Officer Tim Cook, 50, who has been running day-to-day operations. “I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know,” Jobs, 56, said in a statement yesterday. “Unfortunately, that day has come.” Under Jobs, Apple became the second-most valuable company in the world, after Exxon Mobil Corp. (XOM), by introducing devices that revolutionized the computer, music and mobile phone industries. “He’s always going to be remembered, maybe for the next 100 years, as the greatest technology business leader of our time,” Steve Wozniak, who co-founded Apple with Jobs, said in an interview on “Bloomberg West.” “Company culture doesn’t change overnight. He’s got tens of thousands of employees. The quality of the products reflects how good they are, too.”
  • Bernanke Signaling No QE Backed by Data. Federal Reserve Chairman Ben S. Bernanke tomorrow may disappoint stock investors betting on a commitment to step up stimulus. He has little choice, given rising consumer prices and a U.S. economy that is still growing. Gasoline costs are 33 percent higher, consumer inflation is twice as fast and inflation expectations are above levels since Bernanke signaled more easing a year ago at the annual Fed symposium in Jackson Hole, Wyoming. While the U.S. expansion has slowed, the Chicago Fed’s index of 85 economic indicators improved in July for a third month on gains in production. Policy makers, who said Aug. 9 they’ll use additional tools “as appropriate,” probably don’t expect a recession or rapid disinflation, making a signal of bond buying premature, said Roberto Perli, managing director at International Strategy & Investment Group in Washington. Instead, Bernanke will probably detail options for further stimulus and clarify how much the Fed’s reduction in its outlook this month stems from long-term obstacles to growth, said Keith Hembre, a former Fed researcher. “Conditions are substantially different today” compared with last year, especially inflation, said Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management, which oversees about $212 billion. “First and foremost, that would be the reason I think that any sort of major asset purchase announcement is unlikely,” he said.
  • Derivatives 'Data Gaps' May Hide Threats to Stability of Financial Markets. Regulators said they might not have enough information to assess the threat over-the-counter derivatives pose to the financial system. Shortfalls in available data may undermine attempts to use so-called trade repositories as a tool to improve market oversight, the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions said in a report published today. The lack of details on the value of trades “presents a potential gap in the data that authorities may require to fulfill” their mandates, the organizations said. More data on collateral would allow regulators to “better assess exposures, counterparty risk and ultimately systemic risk,” they said.
  • The slide in U.S. gasoline demand to a nine-year low is adding to evidence the faltering economy is keeping motorists off the road as the nation heads toward the Labor Day holiday. The amount of gasoline supplied to the U.S. market by refiners and blenders fell 2% to 9.01 million barrels a day last week, the lowest level for this time of year since 2002, an Energy Department report showed yesterday. American drivers last week bought 4.2% less fuel than a year earlier, MasterCard Inc. said Aug. 23.
Wall Street Journal:
  • Apple's(AAPL) Deep Bench. Mr. Jobs provided a charismatic persona and sharp instinct for knowing what consumers want. But his bench is considered a strong management team that has largely stayed out of the limelight until now.
  • German Unease May Add to Europe's Woes. With conditions becoming dimmer for Europe's biggest economy, consumers may hunker down more, an added burden for a euro bloc struggling to contain a debt crisis.
  • A Rush Out of 'Junk'. The market for "junk" bonds is enduring its worst rout since the depths of the financial crisis. Demand for high-yield bonds sold by the riskiest U.S. companies has nearly dried up, an ominous sign for low-rated companies hoping to tap the bond markets and private-equity firms trying to finance leveraged buyouts. New junk-bond offerings in August were at their lowest level since December 2008. Retail investors have been withdrawing record amounts from high-yield mutual funds, forcing those funds to dump bonds in order to raise cash, driving prices even lower. Returns on junk bonds—those rated below investment grade, which offer a high yield due to a high risk of default—dropped to negative 5.1% in August, the worst monthly performance since November 2008, according to the Barclays Capital U.S. High Yield Index.
  • Greek Banks Set to Lose €5 Billion in Bonds Swap. Greek banks are expected to face combined losses totalling about €5 billion under a proposed bond-swap program, a Greek government official said Wednesday, adding that the program is now slated to conclude in October. Speaking to Dow Jones Newswires, the official added that the banks are expected to reflect the impact of those losses when they announce their quarterly earnings next week. "The amount of the losses is yet to be determined, but estimates are for roughly €5 billion. They may be reflected in the banks' second-quarter results due by Aug. 31," the official said.
  • Europe Banks Lean More on Emergency Funding. New signs of stress are piling up in the ailing European banking system. Commercial banks boosted their reliance on the European Central Bank, borrowing €2.82 billion ($4.07 billion) from an emergency lending facility on Tuesday, while other banks continue to park unusually large amounts with the central bank, according to data released Wednesday. While the amount of borrowing is tiny relative to the multitrillion-euro European banking system, it, and the increase from €555 million a day earlier, nonetheless suggest that some lenders are struggling to borrow from traditional funding sources, such as the capital markets or other banks. The ECB charges a punitive 2.25% interest rate to borrow from its facility, well above what a healthy bank typically would pay to borrow via other channels and Tuesday's total is well above normal. Adding to the jitters, executives at Rabobank Groep NV said the Dutch lender is growing increasingly cautious about lending money to rival banks. Echoing past comments from other European bank executives, the Rabobank officials noted they have seen a pullback among the U.S. funds that traditionally have been important sources of liquidity for European lenders. All told, the evidence points to an environment when even strong European banks are finding it harder to obtain affordable long-term funding.
  • John Paulson's Advantage Plus Fund Down -38.7% This Year. John Paulson, the hedge-fund billionaire who runs $35 billion Paulson & Co., has suffered further losses in one of his core funds, as his losing streak continues. Paulson’s Advantage Plus fund has lost 38.7% so far this year, through the end of Friday’s trading, according to someone briefed on the figures. The fund has lost 21.7% for the month, through Friday, underscoring how rough this month has been for the well-known investor. Another fund, Paulson Partners, lost 14.4% in August, through Friday, according to an investor, and is down 11.8% for the year. This is a merger-arbitrage fund that in the past often has not had the same volatility as other funds. Though Paulson slashed holdings of Bank of America by more than half last quarter, his firm still holds shares of the beleaguered bank, as well as shares of other stocks that have fallen lately including Citigroup and Hewlett-Packard. Stocks have rallied this week, potentially helping Paulson’s holdings. But his vast gold investments likely tumbled in value amid the sell-off in gold this week.
  • Pensions Check Quality Rules After S&P Rating Cut. Some public and private pension funds are working to revise their investment guidelines after they were thrown into question when Standard & Poor's Ratings Services downgraded U.S. debt, financial consulting firms said. A principal area of concern for these funds is the overall minimum quality rating for a fixed-income portfolio—in the form of a letter grade—and what the guidelines call for when that rating is breached. The downgrading of a single security wouldn't significantly affect such a rating, but a blanket downgrade of U.S. government securities is a different matter. "The way many investment guidelines are written did not really assume that U.S.-backed debt would ever be downgraded," said Steve Center, vice president at consulting firm Callan Associates. He said he has been working for the past two weeks with several investors, including pension funds, to clarify their guidelines.
  • SEC Bears Down on Fracking. The Securities and Exchange Commission is asking oil and gas companies to provide it with detailed information—including chemicals used and efforts to minimize environmental impact—about their use of a controversial drilling process used to crack open natural gas trapped in rocks. The federal government's investor-and-markets watchdog is stepping into the heated environmental debate surrounding hydraulic fracturing, or "fracking," according to government and industry officials, even as state and federal environmental officials have begun to bring greater pressure on the industry.
  • SEC Officials Are Focus of Inquiry. The Securities and Exchange Commission's internal watchdog is investigating whether enforcement officials misled the government's archives agency last year by saying the SEC was "not aware" of the destruction of certain probe-related records, according to people familiar with the matter. The matter is part of a broader, continuing investigation by the SEC's Inspector General office into whether the Wall Street regulator improperly destroyed thousands of records connected to "matters under inquiry," or MUIs. MUIs are the enforcement division's preliminary looks into potential violations of securities law at hedge funds, Wall Street banks and other firms.
  • New Ways to Track Your Kids Online. Web programs and apps alert parents to sexting, bullying and other problems.
  • Euro-Zone Data Show Rough Path Lies Ahead. A slump in German business confidence and an unexpected fall in euro-zone factory orders marked the latest in a string of forward-looking data to suggest the bloc's economy is losing momentum.
  • Obama and the 'Competency Crisis' by Mortimer Zuckerman. Like many Americans who supported him, I long for a triple-A president to run a triple-A country. Mr. Obama seems unable to get a firm grip on the toughest issue facing his presidency and the country—the economy. He now asserts he is going to "pivot" to jobs. Now we pivot to jobs? When there are already 25 million Americans who are either unemployed or cannot find full-time work? Does this president not appreciate what is going on?
MarketWatch:
  • Hurricane Scenarios Run From Bad to Worse. Right now we have a rapidly strengthening, Category 3 hurricane heading for the eastern seaboard. We still don’t know exactly where or when it will strike land, but we do know that the potential impact could — emphasis on could — be catastrophic.
CNBC:
  • CME Raises Margin Requirements for Trading Gold Futures. The CME Group on Wednesday raised maintenance margins for trading COMEX 100-ounce gold futures by 27 percent, effective after the close of business on Aug 25.
  • Is High-Speed Computer Trading Killing Investing? High speed computer trading by funds with holding periods of sometimes just milliseconds are to blame for rising volatility, the disappearance of diversification and the death of individual stock picking, and the problem is going to get worse, say an number of traders and market strategists.
  • Applied Materials(AMAT) Beats Street; Outlook Dismal. Applied Materials posted quarterly results that beat market estimates, but the chip-gear maker forecast dismal fourth-quarter results on weak macro-economic conditions and a glut in the solar cell market.
Business Insider:
IBD:
NY Times:
  • Behind the Glittery Web Start-Ups, Investors See Other Gold. While the spotlight of the latest technology boom has been trained on a cluster of popular consumer applications like Facebook, Groupon and Zynga, investors are increasingly taking a shine to the start-ups building the infrastructure for those Internet powerhouses.

CNN:
  • Another Summer Chill for Youth Unemployment. The U.S. job market sure has been rough, but for young Americans this summer it was downright dismal. A Bureau of Labor Statistics report released Wednesday said 745,000 more job seekers between 16 and 24 years old were unemployed from April to July. That compares with an increase of 571,000 among the same age group last summer. In July, the share of young people who were employed was 48.8%, marking a record low for the second straight year. July is traditionally the peak month for summertime employment. "This has been another summer of lost opportunities for our nation's young people," said Michael Saltsman, research fellow at the Employment Policies Institute. While the job market for all Americans has been sluggish, the weak economy has hit young job seekers particularly hard. The youth unemployment rate in July was 18.1%, compared with 9.1% overall.
Institutional Investor:
  • How Badly Will The Gold Dive Hurt John Paulson? Is gold a bubble that is finally bursting? This is the big question on Wall Street after the metal dropped $104, or 5.6 percent, on Wednesday. It is down more than 7 percent after hitting an all-time high on Monday. If gold is truly a bubble that is now bursting — like energy prices did in mid-2008 after a stunning run-up in the first half of that year — a number of high-profile hedge funds stand to lose a lot. No one is poised to implode harder than John Paulson, who has staked virtually his entire fortune on gold and related investments. And he can ill afford another big loser in his portfolio: Through August 12 his Advantage Plus fund was already down 33.5 percent year-to-date. For one thing, most of Paulson’s personal money is in the gold share classes of his various hedge funds or his gold fund. In addition, his funds are heavily exposed to gold. For example, at the end of the second quarter, his firm, Paulson & Co, owned nearly $6 billion worth of the SPDR Gold Trust ETF. Paulson had an additional $1.76 billion in AngloGold Ashanti, a major global gold producer based in South Africa. These two positions made up 30 percent of Paulson & Co.’s equity assets alone. The hedge fund manager also had an additional $400 million invested in Gold Fields, another South African gold miner.
Rasmussen Reports:
Reuters:
  • US Green Groups Write Obama to Oppose Oil Pipeline. Ten U.S. environmental groups came out in support of hundreds of protesters arrested at the White House since Saturday for opposing a proposed $7 billion pipeline that would greatly expand imports of crude extracted from Canadian oil sands. The pipeline and processing of the oil, they claim, can potentially spill oil over a vast source of underground water, release large amounts of greenhouse gases, and damage Canadian forests. "We want to let you know that there is not an inch of daylight between our policy position on the Keystone Pipeline and those of the very civil protesters being arrested daily outside the White House," the head of the groups said in a letter sent to President Barack Obama. The groups include the Environmental Defense Fund, the Sierra Club, and the Natural Resources Defense Council. Backers of the project say it would create thousands of well-needed jobs and reduce U.S. dependence on oil from countries that are unfriendly to Washington. TransCanada believes the line will be approved and in service by 2013. The letter said Obama would "trigger a surge of enthusiasm from the green base that supported you so strongly in the last election," should he block the project. "Democrats have to be worried about the youth vote," said Kert Davies, a researcher at Greenpeace, one of the groups that signed the letter. Obama has done some things that environmentalists like, such as raising fuel efficiency standards for vehicles. But support from such voters could wane if Obama decides to approve the Keystone line. "Like it or not greens helped get Obama elected in 2008, but right now many are uninspired," said Davies.
Financial Times:
Die Welt:
  • The European Union has begun proceedings against Germany, accusing the government of violating the EU treaty regarding the free movement of people.
Tokyo Shimbun:
  • The crippled Fukushima Dai-Ichi nuclear plant emitted about 169 times the amount of radioactive cesium-137 released by the atomic bombing of Hiroshima, citing a Japanese government estimate submitted to a parliamentary committee. The Tokyo Electric Power Co. plant emitted 15,000 terabecquerels of cesium-137, the report said.
Asia Economy Daily:
  • General Motors Co.'s(GM) South Korean unit plans to raise output by 20% next year, citing industry officials.
China Securities Journal:
  • China should guard against large economic fluctuations, the China Securities Journal said in a front-page editorial today. Third-quarter economic growth should slow from the second quarter and export growth may have an obvious decline in the next several months. The inflation situation is also complicated because a "turning point" in August when consumer prices will probably grow at a slower pace than July's 6.5% gain won't mean inflation is entering a continuous downtrend. The frequency of monetary tightening may slow in the next several months although further tightening is possible.
China Business News:
  • China should consolidate management of local government debt so as to have "complete" control, Ba Shusong, a researcher with the Development Research Center of the State Council, wrote in a commentary. China's prohibition on local government's use of new debt to repay old debt will increase the liquidity risk for local governments and their financing vehicles, Ba writes.
China Daily:
  • Li Jianguo, vice chairman of the Standing Committee of China's National People's Congress, said the nation's "rapidly" aging population is a "serious" challenge to the introduction of an affordable and comprehensive pension system. Social security funds in some regions have had deficits because the population of retirees is larger than that of workers, citing Li.
National Business Daily:
  • China's inflation rate in August may be equal to or even higher than July levels as pork prices jumped. China's August pork prices may climb about 50% from a year earlier, lifting consumer prices. Pork prices are unlikely to decline "significantly" in the short term because tight supply of live hogs hasn't eased, citing Li Guoxiang, a researcher at the Chinese Academy of Social Sciences.
Evening Recommendations
KeyBanc:
  • Rated (VMI) Buy, target $110.
Night Trading
  • Asian equity indices are -.50% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 165.0 +4.25 basis points.
  • Asia Pacific Sovereign CDS Index 157.0 +6.0 basis points.
  • FTSE-100 futures +.49%.
  • S&P 500 futures -.23%.
  • NASDAQ 100 futures -.88%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PDCO)/.44
  • (HRL)/.35
  • (BIG)/.45
  • (FRED)/.13
  • (MCRS)/.49
  • (SAFM)/-.91
  • (CPWM)/-.40
  • (KKD)/.06
  • (OVTI)/.71
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to fall to 405K versus 408K the prior week.
  • Continuing Claims are estimated to fall to 3700K versus 3702K prior.
Upcoming Splits
  • (CLW) 2-for-1
Other Potential Market Movers
  • The 7-Year Treasury Note Auction, weekly EIA natural gas inventory report, Fed's weekly Balance Sheet/M1, M2 reports and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.