BETWEEN THE HEDGES

Monday, October 10, 2011

Monday Watch

Posted by Gary .....at 1:00 AM

Weekend Headlines
Bloomberg:

Merkel, Sarkozy Pledge Bank Recapitalization. Angela Merkel and Nicolas Sarkozy, racing to stamp out the euro debt crisis threatening to engulf the financial system, gave themselves three weeks to devise a plan to recapitalize banks, get Greece on the right track and fix Europe’s economic governance. “By the end of the month, we will have responded to the crisis issue and to the vision issue,” the French president said in Berlin yesterday at a joint briefing with the German chancellor before they dined at her office. Under rising pressure to defuse turmoil that’s raged for 18 months, and facing growing concern Greece is headed to a default, Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit. “Maybe they’re still running one step behind, but they are at least discussing the right things,” Carsten Brzeski, an economist at ING Group in Brussels, said in a phone interview.
Belgium to Buy Dexia's Consumer Unit for $5.4 Billion. Belgium agreed to buy the local consumer-lending unit of Dexia SA (DEXB), ending a 15-year cross-border experiment with France after the European debt crisis deepened. The Belgian federal government will pay 4 billion euros ($5.4 billion) for the division and guarantee 60 percent of a so-called bad bank to be set up for Dexia’s troubled assets, Finance Minister Didier Reynders said at a press conference today in Brussels. The dismantling of Dexia, once the world’s leading lender to municipalities, became inevitable after concern over European sovereign debt holdings caused its short-term funding to evaporate. Dexia’s breakup, three months after it got a clean bill of health in European Union stress tests, brought the region’s banking crisis from the continent’s periphery to its center. “Dexia is not an isolated problem,” said Cor Kluis, an Utrecht, Netherlands-based analyst at Rabobank International who rates Dexia “reduce.” “The question for all investors in Europe is how politicians are going to handle this, and what they want to see is a coordinated and professional solution. That would be a good opportunity to restore calm.”
Slovak SaS Party Won't Back EFSF After Compromise Rejected. Slovakia’s ruling Freedom and Solidarity party won’t back the overhaul of the European bailout mechanism after Prime Minister Iveta Radicova rejected the party’s conditions for approval, a lawmaker said. The party, known as SaS, insists its three coalition partners agree to two conditions before it will back the enhancement of the euro region’s bailout fund, the European Financial Stability Facility, in a parliamentary vote Oct. 11, said Jozef Kollar, head of SaS’s parliamentary caucus. “If the solutions we have put forward aren’t accepted then we will not vote for the EFSF,” Kollar said in a debate on state Slovak Radio today. Slovakia and Malta are the only countries that haven’t yet ratified the key element in the European Union’s plan to prevent the region’s debt crisis from spreading. The Slovak row risks sinking the EU plan, which needs the unanimous consent of all 17 euro members to come into force. SaS is calling for the creation of an inter-party committee that would have a right to veto individual EFSF disbursements. It is also demanding that Slovakia doesn’t participate in the European Stability Mechanism, a permanent rescue vehicle set to come into force in 2013. SaS will negotiate “until the last minute” with its coalition partners, according to a statement posted on the party’s web site today. Smer, the largest opposition party, has said it won’t support the EFSF overhaul unless the government steps down.
Short Selling Rise Most Since '06 as Stocks Erase $11 Trillion. Investors are increasing bearish trades around the world by the most in at least five years, convinced the lowest valuations since 2009 will prove no barrier to losses after $11 trillion was erased from equities. Borrowed shares, an indication of short selling, climbed to 11.6 percent of stock last month from 9.5 percent in July, the biggest increase since at least 2006, according to information compiled for Bloomberg by Data Explorers, a London-based research firm. Trades that profit when Chinese equities decline have reached a four-year high and bearish bets in the U.S. are the most since 2009, exchange data show. Slowing economies are spurring short sellers after indexes in 37 out of 45 major countries tumbled 20 percent, the common definition of a bear market.
Paulson Main Fund Said to Lose 47% This Year Through September. John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, has lost 47 percent this year in his largest hedge fund, according to two people familiar with the matter. Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, uses leverage to amplify returns. The fund’s gold share class declined 32 percent this year through the end of September, said the people, who asked not to be identified because the fund is private. Paulson, 55, would have to return about 89 percent in the remainder of the year to break even in the Advantage Plus Fund. Paulson & Co., which is based in New York and manages $30 billion, has lost money this year on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp.
AT&T(T) Says Pre-Orders for Apple(AAPL) iPhone 4S Broke The Company's Sales Records. AT&T Inc. (T) received more than 200,000 preorders for the iPhone 4S in 12 hours, marking the company’s most successful debut yet for the Apple Inc. (AAPL) device. There has been “extraordinary demand” for the new iPhone, the Dallas-based carrier said today in a statement. AT&T, along with Verizon Wireless and Sprint Nextel Corp. (S), provide service for the phone. The rush of orders signals that there’s pent-up demand for the new model, which followed the previous version by 16 months -- longer than usual.
China Companies Evading Rule With U.S. Listings Stump Regulators. A common corporate structure that has allowed dozens of Chinese companies to get listed on U.S. exchanges is drawing increased scrutiny from American audit regulators. Chinese Internet companies such as Sina Corp. and Baidu Inc. have used so-called variable interest entities, or VIEs, to work around Chinese restrictions and seek foreign investors since 2000. Now, the Securities and Exchange Commission is also asking questions about the structure, said Paul Boltz, a Hong Kong-based partner at Ropes & Gray LLP, who cited comment letters the agency sent to six companies since December. Judith Burns, an SEC spokeswoman, declined to comment. The heightened attention may add to investors’ caution regarding Chinese stocks trading in North America.
Too Big to Fail Not Fixed, Despite Dodd-Frank: Simon Johnson. Here we go again. Major shocks potentially threaten the solvency of some of the world’s largest financial institutions. Concerns grow over the ability of European leaders to shore up their banks, which are reeling from a sovereign-debt crisis. In the U.S., the shares of some large banks are trading at less than book value, while creditor confidence crumbles.
Green Europe Imperiled as Debt Crisis Triggers 46% Carbon Market Collapse. The European sovereign debt crisis that’s spread from Greece to Italy and is roiling the region’s banks now has another potential victim: energy policy. European emissions permits, needed by polluters from utilities to cement makers for each ton of the carbon dioxide they put in the atmosphere, slumped to their lowest in 2 1/2 years on Oct 4. An auction of permits by Greece, trying to avoid the euro area’s first default, worsened a glut of permits, UBS AG analyst Per Lekander said last week. Lower carbon prices discourage European utilities including EON AG and GDF Suez SA from investing in wind farms and solar plants that don’t need permits.

Wall Street Journal:

SEC Cop to Back Claim. The U.S. Securities and Exchange Commission's internal watchdog will back a whistleblower's claim that the regulator for years destroyed enforcement records it should have kept, according to people familiar with a report on the findings of a months-long probe. The report by David Kotz, the SEC's inspector general, also criticizes the regulator for misleading another federal agency, the National Archives and Records Administration, the people said.
Hong Kong's CEO: Govt Made Mistakes In Housing, Land-Supply Policy. Hong Kong's Chief Executive Donald Tsang said Saturday that his administration had made mistakes in housing and land-supply policies, which have helped propel home prices to levels beyond the reach of many local households. Tsang said the government might have overreacted in the few years following 2003, when the city was hit by the SARS outbreak and property prices plummeted more than 60% from their peak in 1997. "We made some mistakes, honestly. We stopped doing a series of things after the property bubble burst. This included the fact that we didn't put enough effort into building up adequate land reserves," Tsang said in an interview with Commercial Radio Hong Kong.
Discord Riddles Libyan Factions. Six weeks after the fall of Tripoli, the palmy days of rebel unity have begun to disintegrate into a spiral of infighting, political jockeying and even the occasional violent flare-up threatening to derail Libya's post-Gadhafi transition.
California Governor Signs Dream Act. California Governor Jerry Brown on Saturday finished signing the California Dream Act, under which California students who are undocumented immigrants will qualify for state-funded financial aid for college.
GOP Lawmaker Questions Loan Guarantees to 3 Firms. A top Republican lawmaker is questioning whether the Energy Department rushed approval for $4.75 billion in loan guarantees to three companies just hours before much of the funding for the loan guarantee program was set to expire. Rep. Darrell Issa of California, chairman of the House oversight committee, sent a letter Friday to Energy Secretary Steven Chu seeking information about loans provided to First Solar Inc., SunPower Corp. and ProLogis Inc.
Secret Orders Target Email. The U.S. government has obtained a controversial type of secret court order to force Google Inc.(GOOG) and small Internet provider Sonic.net Inc. to turn over information from the email accounts of WikiLeaks volunteer Jacob Appelbaum, according to documents reviewed by The Wall Street Journal. Sonic said it fought the government's order and lost, and was forced to turn over information. Challenging the order was "rather expensive, but we felt it was the right thing to do," said Sonic's chief executive, Dane Jasper. The government's request included the email addresses of people Mr. Appelbaum corresponded with the past two years.
The Solyndra Economy.

CNBC:

Hedge Funds Suffer Worst Quarter Since 2008. The average hedge fund suffered a 2.8 percent fall in the value of its assets in September, which took total average losses for the quarter to 5.5 percent, according to Hedge Fund Research. Equity-focused hedge funds, meanwhile, did no better than the broader market. In a blow to highly paid stock-pickers, funds that buy shares and use short sales to hedge their positions have delivered the same returns as the S&P 500 index, including dividends, in the first nine months of the year, a loss of 8.7 percent.
Dow(DOW), Saudi Oil Company Sign Accord for $20B Plant. Dow Chemical Co. and the Saudi Arabian Oil Co. said Saturday that they signed an agreement that advances their plan to build one of the world's biggest chemical plants in Saudi Arabia. The $20 billion complex is expected to begin production in 2015.
Deficit 'Supercommittee' Struggles as Clock Ticks. After weeks of secret meetings, the 12-member deficit-cutting panel established under last summer's budget and debt deal appears no closer to a breakthrough than when talks began last month. While the panel members themselves aren't doing much talking, other lawmakers, aides and lobbyists closely tracking the so-called "supercommittee" are increasingly skeptical, even pessimistic, that the panel will be able to meet its assigned goal of at least $1.2 trillion in deficit savings over the next 10 years.

Business Insider:

Zero Hedge:

Key Market Events In The Coming Week.

NY Times:

Clamping Down on Rapid Trades in Stock Market. Regulators in the United States and overseas are cracking down on computerized high-speed trading that crowds today’s stock exchanges, worried that as it spreads around the globe it is making market swings worse. The cost of these high-frequency traders, critics say, is the confidence of ordinary investors in the markets, and ultimately their belief in the fairness of the financial system. “There is something unholy about them,” said Guy P. Wyser-Pratte, a prominent longtime Wall Street trader and investor. “That is what caused this tremendous volatility. They make a fortune whereas the public gets so whipsawed by this trading.” Regulators are playing catch-up.

LA Times:

Few Places to Hide as Bear Growls. Funds that own small stocks and emerging-market issues take the biggest hits. China-region stock funds took the biggest dive of any equity sector in the third quarter, losing 25.6% on average, according to fund tracker Lipper Inc. Chinese investors and foreigners alike have soured on the country's equities as inflation has surged and the government has tightened credit in response. The fear is that China could be headed for a "hard" economic landing. What's more, new trade tensions with the U.S. are weighing on investor sentiment. A U.S. Senate bill would make it easier to boost tariffs on Chinese exports unless Beijing allows its currency to rise faster against the dollar.
Fast and Furious Weapons Were Found in Mexico Cartel Enforcer's Home. Guns illegally purchased under the ATF operation were found in April hidden in violence-plagued Ciudad Juarez, Mexico, court records show. High-powered assault weapons illegally purchased under the ATF's Fast and Furious program in Phoenix ended up in a home belonging to the purported top Sinaloa cartel enforcer in Ciudad Juarez, Mexico, whose organization was terrorizing that city with the worst violence in the Mexican drug wars. In all, 100 assault weapons acquired under Fast and Furious were transported 350 miles from Phoenix to El Paso, making that West Texas city a central hub for gun traffickers. Forty of the weapons made it across the border and into the arsenal of Jose Antonio Torres Marrufo, a feared cartel leader in Ciudad Juarez, according to federal court records and trace documents from the Bureau of Alcohol, Tobacco, Firearms and Explosives.
Obama Fundraiser Took Active Interest In Solyndra Loan, Emails Show. Steven Spinner, an Energy Department advisor whose wife worked for a law firm representing Solyndra, may have done more than simply monitor the progress of the $535-million loan guarantee to the now-bankrupt company, White House emails indicate.

Rasmussen Reports:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -23 (see trends).

AP:

19 Dead in Worst Cairo Riots Since Mubarak Ouster. Massive clashes raged Sunday in downtown Cairo, drawing Christians angry over a recent church attack, hard-line Muslims and Egyptian security forces. At least 19 people were killed and more than 150 injured in the worst sectarian violence since the uprising that ousted Hosni Mubarak in February. The violence lasted late into the night, bringing out a deployment of more than 1,000 security forces and armored vehicles to defend the state television building along the Nile, where the trouble began. The clashes spread to nearby Tahrir Square, drawing thousands of people to the vast plaza that served as the epicenter of the protests that ousted Mubarak. On Sunday night, they battled each other with rocks and firebombs, some tearing up pavement for ammunition and others collecting stones in boxes. At one point, an armored security van sped into the crowd, striking a half-dozen protesters and throwing some into the air. Christians blame Egypt's ruling military council for being too lenient on those behind a spate of anti-Christian attacks since the ouster of Mubarak. The Coptic Christian minority makes up about 10 percent of the country of more than 80 million people. As Egypt undergoes a chaotic power transition and security vacuum in the wake of this year's uprising, Christians are particularly worried about the increasing show of force by the ultraconservative Islamists. The Christian protesters said their demonstration began as a peaceful attempt to sit in at the television building. But then, they said, they came under attack by thugs in plainclothes who rained stones down on them and fired pellets. "The protest was peaceful. We wanted to hold a sit-in, as usual," said Essam Khalili, a protester wearing a white shirt with a cross drawn on it. "Thugs attacked us and a military vehicle jumped over a sidewalk and ran over at least 10 people. I saw them." Wael Roufail, another protester, corroborated the account. "I saw the vehicle running over the protesters. Then they opened fired at us," he said. Later in the evening, a crowd of ultraconservative Muslims known as Salafis turned up to challenge the Christian crowds, shouting, "Speak up! An Islamic state until death!" In the past weeks, riots have broken out at two churches in southern Egypt, prompted by Muslim crowds angry over church construction. One riot broke out near the city of Aswan, even after church officials agreed to a demand by local Salafi Muslims that a cross and bells be removed from the building. Aswan's governor, Gen. Mustafa Kamel al-Sayyed, further raised tensions by suggesting to the media that the church construction was illegal. Protesters said the Copts are demanding the ouster of the governor, reconstruction of the church, compensation for people whose houses were set on fire and prosecution of those behind the riots and attacks on the church.

Reuters:

War Drones Keep Flying Despite Computer Virus. The U.S. government's unmanned Predator and Reaper drones are continuing to fly remote missions overseas despite a computer virus that has infected the plane's U.S.-based cockpits, according to one source familiar with the infection.
Special Report: China's Debt Pileup Raises Risk of Hard Landing. When China announced a nearly $600 billion package to ward off the 2008 global financial crisis, city planners across the country happily embarked on a frenzy of infrastructure projects, some of them of arguable need. Chengdu, the capital of southwestern Sichuan province, answered the call for stimulus action with a bold plan for a railway hub modeled after Waterloo railway station in London. Except London's Waterloo was not ambitious enough. "I was shocked when I finally got to visit Waterloo. It was so small," said Chen Jun, a director at Chengdu Communications Investment Group, which built the new Chinese terminal. "I realized we would probably need a station a few times bigger to meet the demands of our city." In a manner typical of many infrastructure projects in China, Chengdu more than doubled the size of its planned transport hub, borrowed 3 billion yuan ($473 million) from a state bank to finance it, then set out on a blistering construction timeline that saw the finishing touches put on the project two years later. But instead of getting the accolades they expected for helping to stimulate the economy, Chengdu Communications and many of China's 10,000 local government financing vehicles (LGFV) have now come under a harsh spotlight for the grim side-effects of the construction binge. China's local governments have piled up a mountain of bad debt, some of it to finance bridges to nowhere and other white elephant projects, which now threatens to constrict growth at a time when the global economy is sputtering. It is adding to other systemic risks in China, including a sharp downturn in the property market and a rapid rise in problematic loans. Local governments had amassed 10.7 trillion yuan in debt at the end of 2010. The government expects 2.5 to 3 trillion yuan of that will turn sour, while Standard and Chartered reckons as much as 8 to 9 trillion yuan will not be repaid -- or about $1.2 trillion to $1.4 trillion. In other words, the potential debt defaults could be even larger than the $700 billion U.S. bail-out programme during the 2008 crisis.

Financial Times:

Steel prices in Europe are at "a disastrous level" for some grades as buyers "stay out of the market" and delay orders in anticipation of the prices going down "even more," citing Bruno Bolfo, chairman of Duferco. The turmoil in the market will continue into 2012, which is likely to see "short-term economic and financial issues impacting long-term economic sustainability," citing Sajjan Jindal, CEO of JSW.

Telegraph:

Global Crisis Heralds Loss for Goldman Sachs(GS). The losses – estimated to run into several hundred millions of dollars – are expected to spark a $1.45bn (£930m) cost-cutting programme at the bank. A number of highly paid bankers are expected to lose their jobs and be replaced by graduates. The bank wants to maintain headcount but cut some of the costly employees.

Deutsche Presse-Agentur:

Euro-Area finance ministers are discussing scenarios for a Greek haircut of as much as 60%, citing people in the finance industry and people familiar with the negotiations. Such a debt restructuring would affect both banks and tax payers, DPA said. People close to the German government said it's too early for a definitive assessment before the so-called troika delivers its report on whether the Greek government is meeting the conditions of its rescue.

Wirtschaftswoche:

World Bank President Robert Zoellick said Europe won't solve its debt crisis by ensuring banks have access to cash, citing an interview. "Thus far, the Europeans have tried to solve the problem through liquidity assistance," he was quoted as saying. "That won't solve the problem. It only gains time."

Frankfurter Allgemeine Sonntagszeitung:

German Finance Minister Wolfgang Schaeuble said the extent of the debt reduction Greece needs to make may have been underestimated, citing an interview. There's a high risk that the debt crisis will intensify and spread, Schaeuble said. He said euro-area governments must ensure that banks have enough capital to withstand any losses they incur in the event of a Greek debt restructuring. Schaeuble also rejected the suggestion that the EFSF could be given a bank license so that it could borrow from the ECB, saying that would amount to the monetization of government debt.

FAZ:

France's five largest banks are prepared to accept a capital injection of as much as 15 billion euros from the government, citing people in the finance industry. France is however insisting that Germany's Deutsche Bank AG also increase its capital base.

Bild-Zeitung:

Germany Economy Minister Philipp Roesler opposes the idea of letting the European Financial Stability Facility support banks directly, citing an interview. The bailout fund can prevent contagion in the banking sector of it's used as a last resort to make loans to nations seeking to recapitalize banks, he said.

Welt am Sonntag:

Greece must undertake deeper reforms for its bailout to work, citing representatives of the so-called troika that is assessing whether the government is meeting the conditions of its rescue. "Greece is standing at a crossroads," Poul Mathias Thomsen, head of the International Monetary Fund's delegation in Thomsen, head of the IMF's delegation in Athens, was quoted as saying. "It's obvious that the program won't work if authorities don't take the path that requires much tougher structural reforms than those we've seen so far." The European Commission's representative on the troika, Matthias Mors, criticized the Greek government for taking too long to implement planned reforms, according to the German newspaper.

Boersen-Zeitung:

Deutsche Postbank AG CFO Marc Hess expects lenders to take additional writedowns on their holdings of Greek government bonds, citing an interview. Hess estimated that the 21% writedown that his company took on its holdings in August won't be enough, according to the report.

Automotive News Europe:

Fiat SpA CEO Sergio Marchionne said mismanagement of Europe's sovereign debt crisis may cause a regional slump worse than a regular recession, citing an interview.

Handelsblatt:

The German Free Democratic Party's finance spokesman, Frank Schaeffler, said the state shouldn't help to recapitalize struggling banks, citing an interview. Failing banks should be managed in an orderly insolvency procedure, Schaeffler said. The FDP is the coalition partner of Chancellor Angela Merkel's Christian Democrats.

Le Figaro:

European banks must favor private funding if they need to raise capital, including to reassure investors, citing a person close to French Finance Minister Francois Baroin. Injecting public capital must be a last-resort solution, the person said.

Imerisia:

Greece's financing needs until 2020 will be bigger due to a deeper than expected recession and the outcome of private-sector participation on debt swaps, citing the country's representative to the IMF. The gap must be covered by an increase in the 109 billion-euro bailout loan agreed to by European leaders, bigger losses for private creditors or a longer repayment period for Greece's debt, citing Panagiotis Roumeliotis.

Nikkei:

Japanese Executives Grow More Pessimistic, Nikkei Survey Says. One-third of executives at 139 companies that respond to the survey said the global economy is worsening or in a downturn, up from 6.5% in a similar survey in July.

Beijing Post:

Chinese central bank adviser Zhou Qiren said the country should keep prudent monetary policy because small companies will have a better development environment only if inflation is thoroughly curbed. China shouldn't loosen money supply, Zhou says.

Securities News:

China should keep its monetary policy tight as long as there are not great changes to the economic situation, citing Li Yang, a former adviser to the country's central bank. Economic growth in the first half of 2012 will slow more "obviously" compared with slowing growth in the second half of this year, Li says. Li is currently a vice president of the Chinese Academy of Social Sciences.
Stabilizing Prices Remains China's Top Priority. China's central bank has reiterated stabilizing overall prices levels remains the top priority of macro-economic policy, citing information from People's Bank of China's meeting of its monetary policy committee. Prudent monetary policy will continue. Inflationary pressures have eased slightly, but still remain high.

China Finance:

China would keep interest rates at "reasonable" and "appropriate" levels to stabilize prices and manage inflation, three officials from the People's Bank of China jointly write in a commentary. The officials are Wu Ge, Zhang Wen and Ming Ming from the central bank's monetary policy departments.

Weekend Recommendations
Barron's:

Made positive comments on (MCHP) and (HOT).

Night Trading

Asian indices are -.50% to -50% on average.
Asia Ex-Japan Investment Grade CDS Index 229.50 -9.5 basis points.
Asia Pacific Sovereign CDS Index 170.0 +3.5 basis points.
FTSE-100 futures +.69%.
S&P 500 futures +1.22%.
NASDAQ 100 futures +1.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

None of note

Economic Releases

None of note

Upcoming Splits

None of note

Other Potential Market Movers

The China CPI and (KRC) Investor Day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.

Sunday, October 09, 2011

Weekly Outlook

Posted by Gary .....at 5:22 PM

U.S. Week Ahead by MarketWatch (video).

Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising financial sector pessimism, rising global debt angst, global growth worries, technical selling, more shorting and emerging market inflation fears. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.

Friday, October 07, 2011

Market Week in Review

Posted by Gary .....at 7:51 PM

S&P 500 1,155.46 +2.12%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 7:46 PM

Indices

S&P 500 1,155.46 +2.12%
DJIA 11,103.10 +1.74%
NASDAQ 2,479.35 +2.65%
Russell 2000 656.21 +1.87%
Wilshire 5000 11,920.60 +2.09%
Russell 1000 Growth 540.33 +2.46%
Russell 1000 Value 567.38 +1.77%
Morgan Stanley Consumer 695.26 +1.32%
Morgan Stanley Cyclical 798.73 +4.39%
Morgan Stanley Technology 587.80 +5.48%
Transports 4,359.55 +4.06%
Utilities 431.34 -.47%
MSCI Emerging Markets 36.55 +.71%
Lyxor L/S Equity Long Bias Index 907.10 -3.68%
Lyxor L/S Equity Variable Bias Index 837.32 -1.73%
Lyxor L/S Equity Short Bias Index 659.06 +2.42%

Sentiment/Internals

NYSE Cumulative A/D Line 116,868 +.35%
Bloomberg New Highs-Lows Index -290 +496
Bloomberg Crude Oil % Bulls 27.0 -6.90%
CFTC Oil Net Speculative Position 108,164 -21.44%
CFTC Oil Total Open Interest 1,431,783 +3.71%
Total Put/Call 1.11 -10.48%
OEX Put/Call 1.94 -2.02%
ISE Sentiment 66.0 -25.84%
NYSE Arms 1.64 -57.84%
Volatility(VIX) 36.20 -15.74%
S&P 500 Implied Correlation 82.32 -8.82%
G7 Currency Volatility (VXY) 13.14 -7.72%
Smart Money Flow Index 10,341.11 +4.86%
Money Mkt Mutual Fund Assets $2.639 Trillion +.20%
AAII % Bulls 35.24 +8.40%
AAII % Bears 45.71 -2.33%

Futures Spot Prices

CRB Index 303.52 +1.80%
Crude Oil 82.98 +5.37%
Reformulated Gasoline 264.76 +4.26%
Natural Gas 3.48 -4.94%
Heating Oil 285.88 +2.61%
Gold 1,635.80 +.57%
Bloomberg Base Metals 204.58 +.52%
Copper 327.35 +5.21%
US No. 1 Heavy Melt Scrap Steel 418.33 USD/Ton unch.
China Hot Rolled Domestic Steel Sheet 4,616 Yuan/Ton unch.
UBS-Bloomberg Agriculture 1,510.26 -.47%

Economy

ECRI Weekly Leading Economic Index Growth Rate -8.10% -90 basis points
S&P 500 EPS Estimates 1 Year Mean 95.85 -.04%
Citi US Economic Surprise Index -7.50 +22.0 points
Fed Fund Futures imply 31.7% chance of no change, 68.3% chance of 25 basis point cut on 11/02
US Dollar Index 78.75 -.06%
Yield Curve 179.0 +12 basis points
10-Year US Treasury Yield 2.08% +16 basis points
Federal Reserve's Balance Sheet $2.843 Trillion +.30%
U.S. Sovereign Debt Credit Default Swap 48.80 -6.59%
Illinois Municipal Debt Credit Default Swap 270.0 +2.38%
Western Europe Sovereign Debt Credit Default Swap Index 340.05 -.52%
Emerging Markets Sovereign Debt CDS Index 284.50 -1.95%
Saudi Sovereign Debt Credit Default Swap 129.0 +2.92%
Iraqi 2028 Government Bonds 77.83 -3.24%
China Blended Corporate Spread Index 896.0 -16 basis points
10-Year TIPS Spread 1.95% +19 basis points
TED Spread 39.0 +4 basis points
3-Month Euribor/OIS Spread 72.0 -9 basis points
N. America Investment Grade Credit Default Swap Index 138.31 -1.85%
Euro Financial Sector Credit Default Swap Index 238.36 -6.27%
Emerging Markets Credit Default Swap Index 346.07 -6.29%
CMBS Super Senior AAA 10-Year Treasury Spread 301.0 unch.
M1 Money Supply $2.137 Trillion +1.48%
Commercial Paper Outstanding 985.4B -2.20%
4-Week Moving Average of Jobless Claims 414,000 -1.0%
Continuing Claims Unemployment Rate 2.9% -10 basis points
Average 30-Year Mortgage Rate 3.94% -7 basis points
Weekly Mortgage Applications 734.90 -4.30%
Bloomberg Consumer Comfort -50.2 +2.8 points
Weekly Retail Sales +4.40% unch.
Nationwide Gas $3.39/gallon -.06/gallon
U.S. Cooling Demand Next 7 Days 10.0% below normal
Baltic Dry Index 2,000 +5.32%
Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 unch.
Rail Freight Carloads 250,864 +.99%

Best Performing Style

Mid-Cap Growth +2.61%

Worst Performing Style

Small-Cap Value +1.22%

Leading Sectors

Education +8.30%
Road & Rail +7.36%
Construction +7.33%
Semis +5.87%
Disk Drives +5.36%

Lagging Sectors

Telecom -1.24%
Airlines -1.35%
Hospitals -1.37%
REITs -1.89%
Oil Tankers -7.17%

Weekly High-Volume Stock Gainers (7)

PPDI, EBS, MDCO, TNGO, MEAS, TISI and RECN

Weekly High-Volume Stock Losers (12)

OCR, APKT, NU, PMC, IRM, SXC, CNS, CJES, AM, OSG, AMED and KIOR

Weekly Charts
ETFs

Stocks

*5-Day Change

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, More Financial Sector Pessimism, Technical Selling, More Shorting

Posted by Gary .....at 4:09 PM

Broad Market Tone:

Advance/Decline Line: Substantially Lower
Sector Performance: Most Sectors Declining
Volume: About Average
Market Leading Stocks: Performing In Line

Equity Investor Angst:

VIX 36.87 +1.65%
ISE Sentiment Index 65.0 -26.97%
Total Put/Call 1.13 -5.04%
NYSE Arms 1.20 +238.41%

Credit Investor Angst:

North American Investment Grade CDS Index 138.31 -2.68%
European Financial Sector CDS Index 237.83 -.40%
Western Europe Sovereign Debt CDS Index 340.38 +.19%
Emerging Market CDS Index 346.27 -.55%
2-Year Swap Spread 40.0 +1 bp
TED Spread 39.0 unch.

Economic Gauges:

3-Month T-Bill Yield .00% unch.
Yield Curve 178.0 +5 bps
China Import Iron Ore Spot $170.0/Metric Tonne unch.
Citi US Economic Surprise Index -7.50 +7.2 points
10-Year TIPS Spread 1.94 +5 basis points

Overseas Futures:

Nikkei Futures: Indicating -10 open in Japan
DAX Futures: Indicating -21 open in Germany

Portfolio:

Slightly Higher: On gains in my Retail/Medical sector longs, Emerging Markets shorts and Index hedges
Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 reverses lower again near its downward sloping 50-day moving average on rising Eurozone debt angst, more financial sector pessimism and global growth worries. On the positive side, Semi and Retail shares are especially strong, rising more than +.5%. Copper is rising +1.66%, the Bloomberg-UBS Ag Spot Index is declining -.10% and Gold is falling -.62%. The 10-year yield is rising +9 bps to 2.07%. The Japan sovereign cds is falling -7.78% to 126.25 bps, the China sovereign cds is down -4.2% to 172.04 bps and the Brazil sovereign cds is falling -6.73% to 178.37 bps. Major Asian indices surged 1-3% overnight. On the negative side, Coal, Alt Energy, Oil Service, Steel, Wireless, Bank, I-Bank, Biotech, Insurance, REIT and Airline shares are under meaningful pressure, falling more than -1.75%. Small-cap and Cyclical shares are substantially underperforming. Oil is gaining +.56% and Lumber is falling -3.5%. Rice is still close to its multi-year high, rising +24.0% in about 12 weeks. The Germany sovereign cds is rising +1.2% to 98.17 bps, the France sovereign cds is gaining +2.02% to 176.67 bps, the Spain sovereign cds is jumping +7.74% to 368.67 bps and the UK sovereign cds is gaining +3.4% to 92.76 bps. The Libor-OIS Spread is rising +1 bps to 31.0 bps, which is the highest since July 2010. The FRA/OIS Spread is rising 3.42 bps to 54.3 bps, which is also the highest since July 2010. As well, the TED and 2-Year Swap Spreads haven't come in at all, which is also noteworthy considering the recent strong equity advance. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records. Ukraine shares fell another -1.2% today, notwithstanding gains in much of Europe, and are now down -47.2% ytd. As well, Brazilian equities fell -2.2% today and are now down -25.8% ytd. Various global credit angst gauges continue to trend higher, despite recent pullbacks, which remains a large negative. The average stock, as measured by the Value Line Geometric Growth Index, fell about -2.0% today. I still believe investors have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe. Moreover, even if another "kick the can" solution is imminent, the economies in the region will likely continue to deteriorate as the massive tax hikes and spending cuts intensify, which will further exacerbate their debt issues over the longer-term. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, more financial sector pessimism, global growth worries, technical selling, more shorting and profit taking.

Today's Headlines

Posted by Gary .....at 3:01 PM

Bloomberg:

Spain, Italy Credit Ratings Cut by Fitch on European Debt Crisis. Italy and Spain had their long-term issuer default ratings cut by Fitch Ratings, which cited factors including their vulnerability to the “Euro zone crisis.”Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ‘AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative. Fitch also said it was cutting its estimate of Spain’s medium-term growth. The ratings company maintained a rating watch negative on Portugal, indicating the nation may still be cut. Portugal’s foreign and local currency long-term issuer default ratings are ‘BBB-.’ Fitch said it still intends to complete its review in the fourth quarter.
Moody's Lowers Its Senior Debt, Deposit Ratings for Nine Portuguese Banks. Nine Portuguese banks had their debt ratings cut by Moody’s Investors Service by one or two levels, which cited concern about funding, bad loans and holdings of government debt. Moody’s cut the “standalone” debt ratings of three banks, Banco Espirito Santo SA (BES), Banco Comercial Portugues SA (BCP) and Banco BPI SA (BPI), by two levels, the ratings company said in a statement today. The downgrades for BCP and BPI reflected Greek sovereign- debt holdings, potential lack of access to wholesale debt markets and “increased asset risk” caused by holdings of Portuguese government bonds, Moody’s said. The moves conclude a review begun on July 15, when Portugal’s sovereign rating was cut to Ba2 with a negative outlook from Baa1.
ATP of Denmark Snubs French, Italian Bonds for Collateral. ATP, Denmark’s biggest pension fund, said it renegotiated contracts to avoid having to accept top- rated French sovereign bonds as collateral for funding. The 711 billion-kroner ($122 billion) fund reworked swap agreements to exclude the use of bonds sold by France, Italy and other southern European governments as collateral against equity derivatives, interest-rate swaps and repurchase agreements, or repos, Chief Executive Officer Lars Rohde said. Hilleroed, Denmark-based ATP holds 173 billion kroner of collateral, according to its 2011 half-year report. “We have changed the contracts,” Rohde said in an interview with Bloomberg’s Risk Newsletter this week. “We put ourselves in a position where we only receive the very highest quality collateral, which is German, Danish and U.S. government bonds.” The cost of insuring against default on French debt almost trebled in the past six months amid concern the nation will lose its top credit rating while having to bail out lenders hurt in the sovereign crisis.
Payrolls Beat Forecast as Concerns Ease. American employers added more workers in September than forecast and figures for the prior two months were revised higher, easing concern the economy is tipping into another recession. Payrolls rose by 103,000 after a 57,000 gain in August, the Labor Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for an increase of 60,000. The figures reflected the end of a strike at Verizon Communications Inc. (VZ) that brought 45,000 people back to work. The jobless rate held at 9.1 percent. More Americans who would like a full-time job are settling for part-time work instead. They are counted in the underemployment rate, which increased to 16.5 percent, the highest this year, from 16.2 percent. The number of people working part-time for “economic reasons” jumped 444,000 to 9.3 million. Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.
U.S. Regional Mall Vacancies at Decade High. Vacancies at U.S. shopping malls climbed to the highest in at least a decade as feeble employment growth restrained consumer spending, Reis Inc. (REIS) said. Regional and super-regional mall vacancies rose to 9.4 percent in the three months ended Sept. 30 from 8.8 percent a year earlier and 9.3 percent in the second quarter, according to the New York-based property-research company. It was the highest since Reis began publishing the data in 2000. Store owners’ revenue is falling as the U.S. unemployment rate hovers above 9 percent, depressing consumer confidence, and online stores capture more customers.
China Baby Formula Maker Buying Arsenic Debt Reveals Unsecured Trust Loans. A Chinese baby-formula maker selling imported Australian milk to safety-conscious parents invested in the risky debt of lead, arsenic and cadmium refiners, seeking higher returns for its cash. The uncollateralized investment, sold by a middleman known as a trust, promises to pay Ausnutria Dairy Corp. about double China’s benchmark savings rate. It’s an example of how companies are undermining government efforts to cool lending that has led to soaring property prices and inflation of 6.2 percent, near a three-year high.
Copper Traders the Most Bullish Since August After Biggest Rout Since '08. Copper traders and analysts are the most bullish since August on speculation prices at a one-year low will spur China, the world’s largest buyer, to build stockpiles. Gold, sugar, corn and soybeans may also climb. Ten of 15 respondents surveyed by Bloomberg expect copper to rise next week and 5 predicted a drop, the most bullish reading in six weeks. It’s the first time in four weeks that the separate surveys forecast gains for all five commodities.

Wall Street Journal:

AFL-CIO President Visits Wall Street Protesters. The Wall Street protesters have gotten a boost from the leader of a big trade union federation. AFL-CIO President Richard Trumka appeared Friday morning at Manhattan's Zuccotti Park. Trumka said he came to show his support and hear the protesters' perspective. He also brought bagels, water and other supplies. Protesters have been camping out for weeks at the park near Wall Street.
ECRI Weekly Leading Index Still Drilling Downward. (graph) The Economic Cycle Research Institute, which has declared that a recession is coming — and, like the whacking of Tommy DeVito in Goodfellas, “we couldn’t do nothing about it” — offers up another piece of evidence this morning. Its weekly leading index fell again this week, and its rolling growth rate dropped to -8.1%, the lowest in at least a year.

MarketWatch:

12 Lessons For Us All From The Life Of Steve Jobs.
Illumina(ILMN) Woes Shine Light on Industry Trouble. A dire revenue warning from biotech firm Illumina Inc. swept away nearly a third of the company’s market value Friday and caused other players in the sector to tumble as investors feared the worst.

CNBC.com:

Solyndra Casts Shadow on US Energy Loan Aid. Political furor over the Solyndra bankruptcy has dealt a body blow to the idea that the U.S. government should try to help clean tech start-ups through the costly "valley of death" to commercial viability.

Business Insider:

Zero Hedge:

New York Times:

Hedge Funds' Next Target: Hungary? French and Belgian bank stocks have crashed and the bond yields of Greece, Italy and Portugal may be peaking. Now hedge funds and bond vigilantes have begun to zero in on Hungary as the fashionable European country to bet against.

The Daily Caller:

White House Changes Tune on Double-Dip Recession. White House officials are using a new set of talking points to sell their stimulus plan: The economy’s possible slide into a second recession. During the summer, officials denied a double-dip recession was on the horizon. But yesterday and today, President Barack Obama and his deputies said the $447 billion jobs-stimulus bill is needed to prevent a “double-dip recession.”

Gallup:

Obama Job Approval: 53% Disapprove, 38% Approve. (graph)

Politico:

Michael Bloomberg Tells Occupy Wall Street Protestors to Lay Off Banks. New York Mayor Michael Bloomberg slammed the Occupy Wall Street protesters on Friday, saying their attacks on banks could harm one of the city’s major employers. “Everyone’s got a thing they want to protest, some of which is not realistic,” Bloomberg said during his weekly radio show on Friday, according to The Village Voice. “And if you focus for example on driving the banks out of New York City, you know those are our jobs … You can’t have it both ways: If you want jobs you have to assist companies and give them confidence to go and hire people.”

Reuters:

Moody's Cuts Credit Ratings on UK Banks RBS and Lloyds. Credit rating agency Moody's downgraded Britain's part-nationalized banks Lloyds and Royal Bank of Scotland on Friday, although Britain's finance minister said UK banks were well-placed to cope with a European debt crisis. The cuts to RBS and Lloyds formed part of a broader downgrade of 12 British financial companies by Moody's, which had already been flagged by the agency earlier in the year. Moody's cut RBS by two notches to A2 from Aa3, and downgraded Lloyds TSB by one notch to A1 from Aa3. It also cut its ratings on Santander UK, the Co-Operative Bank, Nationwide Building Society and seven other smaller British building societies.
Hedge Funds Slide Deeper Into The Red In September. For hedge funds, September was even worse than August. The average fund lost 3.7 percent last month after dropping 3.4 percent in August, according to data released on Friday by industry consultant Hennessee Group. The third quarter is being called the worst in three years, and the average hedge fund is now down 5.2 percent this year. For many of the industry's most established stars, the news is even worse.
Brazil Inflation Hits 6-Year High, But Rate Cut Seen.
Germany, France Split on Bank Aid Before Summit. Germany and France were split ahead of crucial talks on Sunday over how to strengthen shaky European banks and fight financial market contagion to prepare for a possible Greek default. Under strong U.S. and market pressure -- and further downgrades to Italy and Spain late on Friday -- Chancellor Angela Merkel and President Nicolas Sarkozy will try to bridge differences on how to use the euro zone's financial firepower to counter a sovereign debt crisis that threatens the global economic recovery. A German source said Paris wanted to be able to tap the euro zone's 440 billion euro rescue fund to recapitalise its own banks, which have the largest exposure to peripheral euro zone debt, while Berlin insisted the fund should be used only as a last resort when no national funds are available. After meeting Dutch premier Mark Rutte, Merkel confirmed the German position was that the European Financial Stability Facility was a backstop to be used "only if that country is unable to cope on its own". A French Treasury source told Reuters that Paris believed banks unable to raise capital on the open market should be able to tap the fund, but talk of divergences with Berlin was premature since the issue had not yet been debated.
US Coal Consumption Down 13% Last Week.

Financial Times:

The Mystery of US Banks' European Exposure. This might just be the most important piece of paper in US banking right now:
Russia Urged to Monitor Banks. The International Monetary Fund has called for greater oversight of Russia’s banks, warning that the $14bn Bank of Moscow bail-out this summer raised serious concerns about the industry’s practices and transparency. Antonio Borges, the IMF’s Europe director, said the central bank’s discovery of a massive hole on Bank of Moscow’s balance sheet following its acquisition by state lender VTB caused a loss of confidence in the Russian banking sector.