Monday, November 21, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Financial Sector Pessimism, US Debt Committee "Failure"

Posted by Gary .....at 3:57 PM

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 33.24 +3.88%
  • ISE Sentiment Index 101.0 +29.49%
  • Total Put/Call 1.09 +23.86%
  • NYSE Arms 2.33 +104.59%
Credit Investor Angst:
  • North American Investment Grade CDS Index 140.06 +3.15%
  • European Financial Sector CDS Index 299.46 +9.10%
  • Western Europe Sovereign Debt CDS Index 357.33 +2.05%
  • Emerging Market CDS Index 335.79 +3.25%
  • 2-Year Swap Spread 54.0 +4 bps
  • TED Spread 49.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 169.0 -3 bps
  • China Import Iron Ore Spot $147.40/Metric Tonne unch.
  • Citi US Economic Surprise Index 48.90 unch.
  • 10-Year TIPS Spread 1.91 -6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -93 open in Japan
  • DAX Futures: Indicating +26 open in Germany
Portfolio:
  • Slightly Lower: On losses in my tech, retail and medical sector longs.
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 breaks convincingly below its 50-day moving average on rising Eurozone debt angst, global growth fears, financial sector pessimism, high energy prices and technical selling. On the positive side, Biotech shares are higher on the day. Oil is falling -1.1%, Gold is falling -2.5% and the UBS-Bloomberg Ag Spot Index is declining -1.25%. On the negative side, Coal, Alt Energy, Oil Service, Oil Tanker, Steel, Internet, Networking, Bank, REIT and Road & Rail shares are under significant pressure, falling more than -3.0%. Small-cap and cyclical shares are underperforming. (XLF) has also traded poorly throughout the day. Copper is falling -2.5% and lumber is falling -1.09%. The 10-year yield is falling -4 bps to 1.97%. Major Asian indices fell 1-2% on average overnight. India's Sensex continues to trade very poorly. It is already testing its Aug/Sept. lows and is now down -22.2% ytd. Major European equity indices fell 3-4% on average today. Italian shares(-28.07% ytd) were Europe's worst-performers today, falling -4.74%, as they broke down from their recent trading range and below their 50-day moving average. The Germany sovereign cds is climbing +2.22% to 97.17 bps, the France sovereign cds is climbing +3.99% to 229.17 bps, the Spain sovereign cds is gaining +2.06% to 465.93 bps, the Japan sovereign cds is gaining +3.2% to 119.27 bps, the Russia sovereign cds is soaring +10.95% to 265.50 bps and the Brazil sovereign cds is gaining +4.3% to 184.0 bps. Moreover, the European Investment Grade CDS Index is jumping +5.2% to 186.43 bps. The France sovereign cds is very near its recent all-time high and the Hungary sovereign cds is very close to its Oct. 24 record high. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is near the highest since May 2010. The FRA/OIS Spread is near the highest since May 2010. The 2yr Euro Swap Spread is at the highest since Nov. 2008. The 3M Euro Basis Swap is falling -6.85% to -138.90 bps, which is the worst since November 2008. The Libor-OIS spread is near the widest since July 2009, which is also noteworthy considering the recent equity advance off the lows. China Iron Ore Spot has plunged -23.2% since February 16th and -18.6% since Sept. 7th. Part of today's equity weakness is related to the apparent "failure" of the US debt super committee. However, even if an unexpected "successful" compromise materializes that includes massive tax hikes/spending cuts, following the highly contractionary policies of Europe, it would be viewed as a large negative by investors over the intermediate-term, in my opinion. Trading still has a somewhat complacent feel to it as stocks surged off the morning lows, accompanied by below average volume, despite the ongoing significant deterioration in European credit gauges. I still think the risk in equities remains substantial unless a positive catalyst emerges from Europe very soon. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, US debt Super Committee concerns, rising global growth fears, financial sector pessimism, more shorting, high energy prices and technical selling.
1 comments

Today's Headlines

Posted by Gary .....at 2:55 PM

Bloomberg:
  • Spanish Bonds Decline After Election; Bunds Gain on Safety Bid. Spanish bonds dropped, extending six weeks of losses, after Prime Minister-elect Mariano Rajoy told the nation to brace for difficult times as he starts work on tackling the euro-area’s third-largest deficit. Italy’s two-year notes fell as concern the regional debt crisis is worsening pushed up dollar-funding costs for European banks. German bonds rose as the Finance Ministry said economic growth is slowing and as U.S. lawmakers struggled to agree on deficit cuts, spurring demand for safer assets. The European Central Bank said it boosted sovereign-debt purchases last week. “Even with a majority, it will be a hard life for the Spanish government,” said Alessandro Giansanti, a senior interest-rates strategist at ING Groep NV in Amsterdam. “The market is realizing the situation in Spain is not too rosy compared with Italy.” The Spanish 10-year yield rose 17 basis points to 6.55 percent at 4:08 p.m. London time, after climbing to a euro-era record 6.78 percent on Nov. 17. The 5.5 percent bond due in April 2021 fell 1.14, or 11.40 euros per 1,000-euro ($1,347) face amount, to 92.73. Two-year rates climbed 14 basis points to 5.57 percent. Rajoy, whose People’s Party swept the ruling Socialists from power after eight years, said on Nov. 18 he hoped Spain wouldn’t need a bailout before he can be sworn in as prime minister in a month. He inherits a stalled economy with the euro area’s highest jobless rate and a deficit of more than twice the euro-region limit. The extra yield investors demand to hold 10-year Spanish securities instead of German bunds expanded 24 basis points to 465 basis points, after reaching 503 basis points on Nov. 18.
  • Euro Zone Needs 'Momentous Deal': Credit Suisse. Euro leaders must reach “a momentous deal” toward fiscal and political union by mid- January to save the 17-nation bloc, Credit Suisse said in a note to investors. The analysts, led by Jonathan Wilmot, the bank’s London- based chief global fixed-income strategist, also predicted the European Central Bank will move “more aggressively” to lower its benchmark 1.25 percent rate and provide banks with longer- term funds. “In short, the fate of the euro is about to be decided,” according to the note, which was published today. At the same time, Italian and Spanish 10-year bond yields could jump above 9 percent and French yields could go above 5 percent, Credit Suisse’s note said. Yields on German bunds could also rise. As things stand now, investors “simply cannot be sure what exactly they are holding or buying in the euro zone sovereign bond markets,” said the report. “We suspect this spells the death of ‘muddle-through’ as market pressures effectively force France and Germany to strike a momentous deal on fiscal union much sooner than currently seems possible, or than either would like. Then and only then do we think the ECB will agree to provide the bridge finance needed to prevent systemic collapse.”
  • German Growth May Grind to Halt as Region's Crisis Saps Exports: Economy. Growth in Germany, Europe’s largest economy, may slow to a near standstill next year as the region’s debt crisis saps demand for exports, the Bundesbank said. The Frankfurt-based central bank cut its 2012 growth forecast to between 0.5 percent and 1 percent from a June prediction of 1.8 percent, and said a “pronounced” period of economic weakness can’t be ruled out if the crisis worsens. “The significant weakening in foreign demand coupled with financial market nervousness” means “the German economy faces more difficult terrain in the months ahead,” the Bundesbank said in its monthly bulletin published today. There are “weighty” risks to the outlook, it said.
  • War on Sovereign Ratings May Backfire on Bonds: Euro Credit. Europe's sovereign debt market is ossifying as restrictions on default-swap insurance and the threat of a ban on credit ratings for governments make traders and investors wary of owning bonds. "Primary dealers may pull out and won't overbid at auctions because they can't get rid of the bonds," said Soeren Moerch, head of government-bond trading at Danske Bank A/S in Copenhagen. "Banks don't want to hold government debt if they have to take writedowns on supposedly risk-free assets."
  • Barton Biggs Sees 60% to 70% Odds of Recession. (video) Biggs said the chance of a recession during the first half of 2012 has risen to between 60 percent and 70 percent.
  • Crude Oil Declines to One-Week Low on U.S. Budget Concern, European Debt. Oil dropped for a third day in New York on signs that U.S. lawmakers won’t agree on cutting the budget deficit and on concern that Europe’s debt crisis will send the region’s economy into a recession. Growth in Germany, Europe’s largest economy, may slow next year, the Bundesbank said today. Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih said the world economy is at risk of a double-dip recession. Crude oil for January delivery fell $1.50, or 1.5 percent, to $96.17 a barrel at 1:34 p.m. on the New York Mercantile Exchange. The price ranged from $95.24, the lowest level since Nov. 10, to $97.86. Futures are up 5.3 percent this year. Brent oil for January settlement dropped $1.25, or 1.2 percent, to $106.31 a barrel on the London-based ICE Futures Europe exchange.
  • Tahrir Square Clashes Erupt for Third Day as Egyptians Defy Military Rule. Clashes erupted in Cairo for a third day after fighting between security forces and demonstrators protesting military rule left at least 22 people dead, a week before Egypt’s first parliamentary elections since the ouster of Hosni Mubarak. Protesters were driven back by tear gas in Tahrir Square, the center of the uprising that toppled Mubarak in February, some waving Egyptian flags and others hurling stones at riot police, in scenes televised from the site. Besides those killed, hundreds were injured in the fighting that started on Nov. 19, Health Ministry spokesman Mohammed el-Sherbeeny said today by telephone. The events in the square recalled the clashes between police and demonstrators during the anti-Mubarak uprising and have threatened to disrupt elections scheduled to start on Nov. 28 as tensions rise between activists and the ruling military council. Egypt’s government is trying to secure financing to support an economy still struggling to recover from the revolt. This afternoon, demonstrators staged a march through Tahrir Square, chanting “The people want to topple the field marshal,” referring to Mohammed Hussein Tantawi, the head of the military council that took power from Mubarak. Television footage showed protesters carrying away at least one person who appeared to be wounded or dead.
  • BofA's(BAC) With Fannie Escalates Over Loan Buyback Stance. Bank of America Corp. told Fannie Mae it refuses to cooperate with the U.S. mortgage firm's new stance on loan buybacks, setting the lender up for a potential surge in claims and penalties. The bank is disputing Fannie Mae's demand that lenders repurchase mortgages or cover any losses themselves if an insurer drops coverage, Bank of America said this month in a regulatory filing. The lender, ranked second by assets among U.S. banks, said it “does not intend to repurchase loans” under what it deems to be new rules, and the refusal may trigger penalties or other sanctions.
  • MF Global Shortfall May Exceed $1.2 Billion: Trustee. MF Global Inc.’s shortfall in U.S. segregated customer accounts may exceed $1.2 billion, more than double what was previously expected, said the trustee overseeing a liquidation of the failed brokerage run by former New Jersey Governor Jon Corzine. That would mean customer accounts are missing about 22 percent of their total of $5.4 billion. A shortfall of 11 percent had been previously estimated by a person with knowledge of probes into the firm’s collapse. James Giddens, the trustee, said today that forensic accountants and investigators are working “around the clock,” and the estimate may change.
Wall Street Journal:
  • Brussels Seeks More Control Over Euro-Zone Member Budgets. The European Commission will set out proposals Wednesday that would significantly tighten Brussels' control over the budget policies of euro-zone member states, according to draft documents. The proposals would see struggling governments forced to submit to frequent reviews of their policies and accounts, and could see euro-zone governments effectively forced to seek financial assistance by a vote of their peers.
  • Congress's Deficit 'Bomb': Scary or Not? Now that the committee has apparently failed, lawmakers and others are taking a harder look at the automatic cuts, or “sequester,” which will kick in starting January 2013 unless Congress acts. And they look plenty scary. Here’s what they entail:
  • Gilead(GILD)-Pharmasset(VRUS) Deal: Wall Street Reacts. Gilead announced a roughly $10.4 billion deal to buy Pharmasset, a company that doesn’t yet have meaningful revenue but is developing treatments for hepatitis C. The deal price of $137 a share was about 59% more than Pharmasset’s highest-ever closing stock price. Here is a look at early Wall Street analysts’ reaction to the takeover:
  • The Two Stocks Smacking Hedge Funds. Stockholdings of J.P. Morgan(JPM) and General Motors(GM) seem to be causing bleeding in hedge funds’ portfolios. About 30 funds count either of the two stocks among their top 10 favored stocks as of Sept. 30, with a 5% portfolio weighting, according to a Goldman Sachs report. But J.P. Morgan’s 21% stock decline year-to-date until Nov. 15, and GM’s 37% decline over the same period don’t bode well for those fund managers.
  • US Health Care Costs Rise 4.3% For Insured Workers In 2Q. Health-care costs in U.S. employer-sponsored health-care plans rose 4.3% in the second quarter from a year earlier and edged up 1.3% from the first quarter, according to data from Thomson Reuters.
MarketWatch:
CNBC.com:
Business Insider:
 Zero Hedge:
Wall Street All-Stars:
Jefferies:
The Daily Caller:
  • MSNBC's Chris Matthews to Obama: 'Just tell us, commander. Give us our orders'. (video) In a Sunday evening interview on MSNBC, “Hardball” host Chris Matthews spoke candidly not just of his allegiance to the president’s agenda, but also of the frustrations many on the professional left are feeling with the administration’s lack of leadership. “There’s nothing to root for,” Matthews lamented. “What are we trying to do in this administration? Why does he want a second term, would he tell us? What’s he going to do in his second term, more of this? Is this it? Is this as good as it gets? Where are we going? Are we going to do something his second term? He’s yet to tell us.” “He has not said one thing about what he’d do in his second term,” Matthews continued. “He never tells us what he’s going to do with reforming our health care systems, Medicare, Medicaid. How he’s going to reform Social Security? Is he going to deal with long-term debt? How? Is he going to reform the tax system? How?" “Just tell us — why are we in this with him? Just tell us, commander. Give us our orders and tell us where we’re going. Give us the mission.”
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
Financial Times:
  • Le Pen Calls for France to Quit Euro. Marine Le Pen, the leader of France’s far-right National Front, has made abandoning the euro one of the pillars of her presidential election campaign, launching a powerful attack on the ailing single currency as she seeks to bolster her already strong showing in the opinion polls. Presenting her “presidential project”, Ms Le Pen said Europe should give up the euro, which had “asphyxiated our economies, killed our industries and choked our jobs” for years, as well as causing France to accumulate “Himalayan” debts. In any case, she added, the country should prepare a planned exit from the currency union. “We need to anticipate the collapse of the euro rather than suffer from the collapse of the euro,” she said in a television interview on Sunday.
  • CDS' Demise Has Been Greatly Exaggerated. There has been so much criticism of credit default swaps (CDS) of late that you would think no one was using them any longer. Yet today we see net open positions of $2,900bn, up from $2,400bn at this time last year. This simple fact belies the inordinate amount of misperceptions surrounding the CDS market. In spite of all the rhetoric, CDS remain a robust and effective financial tool for hedging risk or taking on exposures.
  • China Property Sale Falls Could Hit Banks. The number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times. According to the documents, the China Banking Regulatory Commission earlier this year ordered domestic banks to weigh the impact of a 30 per cent decline in housing transactions in “stress tests” aimed at determining the health of the Chinese financial system.
Telegraph:
  • France Warned on Outlook for AAA Credit Rating by Moody's. Moody's warned France that a sustained rise in its debt yields coupled with weakening economic growth could harm its ratings outlook, fuelling concern the eurozone's second largest economy might lose its AAA status. Today, the rating agency said that a worsening in the French bond market - amid fears the sovereign debt crisis was spreading to the eurozone's core - posed a threat to its credit outlook, though not at this stage to its actual rating. "Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications," Moody's said. The premium investors charge on French 10-year debt compared to the German equivalent was up around 20 basis points at 163 bps following publication of Moody's report but remained well short of the 202 bps hit last week, a new euro-era high.
  • Self-Serving Myths of Europe's Neo-Calvinists. Eurozone leaders now face a choice between two unpalatable alternatives. Either they accept that the eurozone is institutionally flawed and do what is necessary to turn it into a more stable arrangement. This will require some of them to go beyond what their voters seem prepared to allow, and to accept that a certain amount of ‘rule-breaking’ is necessary in the short term if the eurozone is to survive intact. Or they can stick to the fiction that confidence can be restored by the adoption (and enforcement) of tougher rules. This option will condemn the eurozone to self-defeating policies that hasten defaults, contagion and eventual break-up.
  • Graphic: How Bureaucracy is Slowing Europe's Recovery.
Die Welt:
  • Germany should have a greater say at the ECB given the country holds 30% of the financial responsibility, citing Alexander Dorindt, general-secretary of the Christian Social Union, as saying. ECB President Mario Draghi has gotten off to a "very problematic" start in the job by accelerating the central bank's government bond purchases, Dobrindt said in an interview.
O Estado de Sao Paulo:
  • Brazil's government may reduce its forecast for economic growth this year to 3.5% after cutting its estimate to 3.8% on Nov. 18, citing Deputy Finance Minister Nelson Barbosa.
South China Morning Post:
  • Last Chance for China to Burst Bubble Without Chaos: Andy Xie. The bursting of China's housing bubble may lead to bankruptcies, but laid-off workers should find new jobs quickly as the labor market remains tight, writes independent economist Andy Xie. The biggest mistake China could make is to allow the property bubble to grow, leading to hyperinflation, currency devaluation, and social/economic chaos, Xie said. The bubble may burst even without government curbs, he said. Lobal governments and developers are unlikely to succeed in pressuring Beijing to keep the bubble going, like before, says Xie.
0 comments

Bear Radar

Posted by Gary .....at 2:10 PM

Style Underperformer:
  • Small-Cap Value (-3.03%)
Sector Underperformers:
  • 1) Steel -4.31% 2) Alt Energy -4.25% 3) Networking -3.52%
Stocks Falling on Unusual Volume:
  • Y, DVY, KNM, IXP, MTK, SDY, TAC, VVC, IYJ, PIV, PVD, AIXG, DOV, FMCN, Z, GILD, YNDX, SPRD, SHPGY, SIRO, SCVL, CTRP, ANSS, TECD, CRDN, HTHT, CYOU, JACK, AMZN, FCFS, CPSI, ARUN, MAKO, LSTZA, CRM, LCAPA, ETG, BKF, PHK, VVC, LNKD and FIO
Stocks With Unusual Put Option Activity:
  • 1) ESV 2) FMCN 3) TOL 4) UAL 5) VALE
Stocks With Most Negative News Mentions:
  • 1) VNO 2) RIMM 3) GILD 4) SINA 5) WMT
Charts:
0 comments

Bull Radar

Posted by Gary .....at 11:15 AM

Style Outperformer:
  • Mid-Cap Value (-2.42%)
Sector Outperformers:
  • 1) Biotech +4.28% 2) Education -1.31% 3) HMOs -1.35%
Stocks Rising on Unusual Volume:
  • VRUS, INHX, REGN, SPPI and CBE
Stocks With Unusual Call Option Activity:
  • 1) NWSA 2) GILD 3) SPRD 4) ZMH 5) ARIA
Stocks With Most Positive News Mentions:
  • 1) SXCI 2) BLY 3) WMT 4) DNDN 5) TSN
Charts:
0 comments

Monday Watch

Posted by Gary .....at 12:55 AM

Weekend Headlines
Bloomberg:
  • Rajoy Party Wins Spanish Elections After Debt Crisis Overwhelms Socialists. Mariano Rajoy won the biggest parliamentary majority in a Spanish election in almost 30 years, and told Spaniards to brace for difficult times as the nation fights to avoid being overwhelmed by the debt crisis. Rajoy’s People’s Party swept the ruling Socialists from power after eight years, winning 186 of the 350 seats in Parliament, compared with 110 for the ruling party’s candidate Alfredo Perez Rubalcaba. That’s the worst result for the Socialists in more than three decades. Opinion polls in the month before the vote showed the PP winning 184 to 198 seats. “Hard times lie ahead,” Rajoy told supporters outside the PP’s headquarters in Madrid, giving no new details of his plans. “We are going to govern in the most delicate situation Spain has faced in 30 years.” Rajoy, 56, who said on Nov. 18 he hoped Spain wouldn’t need a bailout before he can be sworn in as prime minister in a month’s time, has pledged to slash the budget deficit and regain the nation’s AAA credit rating, without saying how he will do it. He inherits a stagnant economy with a 23 percent unemployment rate and borrowing costs back at the levels Spain was paying before it joined the euro.
  • War on Sovereign Ratings May Backfire on Bonds: Euro Credit. Europe's sovereign debt market is ossifying as restrictions on default-swap insurance and the threat of a ban on credit ratings for governments make traders and investors wary of owning bonds. "Primary dealers may pull out and won't overbid at auctions because they can't get rid of the bonds," said Soeren Moerch, head of government-bond trading at Danske Bank A/S in Copenhagen. "Banks don't want to hold government debt if they have to take writedowns on supposedly risk-free assets." "It is like blaming a mirror when you are ugly faced," said Mark Dowding, a senior portfolio manager at Bluebay Asset Management in London. "The fact that policy makers, in their efforts to fix the problem, are coming up with trivial solutions such as this really speaks to the poor quality of the leadership within the eurozone at the moment."
  • Samaras Won't Sign Pledge Committing to EU's Greek Debt Accord, ANA Says. Antonis Samaras, leader of Greece’s New Democracy Party, won’t sign a document pledging his commitment to the Oct. 26 European Union agreement for the nation, the Athens News Agency reported. Samaras, whose party is a member of the country’s unity government, told officials from the so-called troika of the European Union, the International Monetary Fund and the European Central Bank that he has already taken five actions that show his party’s full commitment to the agreement, the state-run news agency said. These actions, which include a letter to New Democracy’s fellow parties in Europe outlining his commitment to the bailout plan as well as his support for Greece’s 2012 budget, are adequate, the agency cited Samaras as telling troika officials.
  • Johnson: Deutsche Bank Could Transfer Contagion. You’ve probably never heard of Taunus Corp., but according to the Federal Reserve, it’s the U.S.’s eighth-largest bank holding company. Taunus, it turns out, is the North American subsidiary of Germany’s Deutsche Bank AG (DBK), with assets of just over $380 billion. Deutsche Bank holds a large amount of European government and bank debt; it also has considerable exposure to lingering real estate problems in the U.S. The bank, therefore, could become a conduit for risk between the two economies. But which way is Deutsche Bank more likely to transmit danger -- to or from the U.S.?
  • Dollar Preeminence Grows as Foreign Banks Double Deposits at Fed. Foreign bank deposits at the Federal Reserve have more than doubled to $715 billion from $350 billion since the end of 2010 amid Europe’s debt turmoil, buttressing the dollar’s status as the world’s reserve currency. Forty-seven non-U.S. banks held balances of more than $1 billion at the New York Fed as of Sept. 30, up from 22 at the end of 2010, according to a survey of 80 financial institutions by ICAP Plc, the world’s largest inter-dealer broker. The dollar has appreciated 6.6 percent since Standard & Poor’s cut the nation’s AAA credit rating Aug. 5, the best performance among developed-nation peers, according to Bloomberg Correlation- Weighted Currency Indexes. A budget deficit of more than $1 trillion, a deadlock among Congressional supercommittee members on spending cuts and 9 percent unemployment haven’t deterred investors from seeking safety in the world’s biggest economy. The euro has been undermined by the region’s sovereign debt crisis, while the Swiss franc and yen have fallen as their governments buy billions of dollars to weaken them. “There’s not anything close to a substitute and part of it is the deepness of the market, the liquidity,” Jack McIntyre, a fund manager who oversees $23 billion in debt at Brandywine Global Investment Management, a unit of Legg Mason Inc., said Nov. 15 in a telephone interview from Philadelphia.
  • Japan Exports Fall on Yen Gains, Europe Crisis. Japan’s exports fell for the first time in three months, indicating that the yen’s appreciation and financial turmoil in Europe are slowing the nation’s recovery from the March disaster. Shipments dropped 3.7 percent in October from a year earlier, the Ministry of Finance said today in Tokyo, worse than all 29 estimates of economists surveyed by Bloomberg News. Exports to China, Japan’s biggest market, slid 7.7 percent, the largest drop since May, today’s report showed. “A sharp slowdown in demand from eurozone countries should be weakening exports from Asia, in turn leading to weakness in exports from Japan,” said Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo. “Exports should be weakening toward the end of this year, or possibly until January or February.”
  • China Stocks Drop, Extending Biggest Weekly Loss in Month; Developers Fall. China stocks fell, extending the benchmark index’s biggest weekly decline in a month, after Vice Premier Wang Qishan said the global economic situation is “extremely severe.” China Vanke Co. paced losses by developers after Xinhua News Agency said the government may not lift property curbs until the third quarter of next year. Jiangxi Copper led a retreat by commodity producers after metal and oil prices fell. “Investors are now worried about the coming fourth-quarter earnings as a result of tightening policies and most expect profits to drop from the previous quarter,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million.
  • Singapore Says Economic Growth May Slow to 1% to 3% in 2012. Singapore said its economic growth may slow next year, extending a moderation in expansion that’s already prompted the central bank to ease monetary policy. The economy will grow 1 percent to 3 percent in 2012 after expanding 5 percent this year, the trade ministry said in a statement today. Non-oil domestic exports will probably rise 2 percent to 3 percent in 2011, lower than a previous forecast for shipments to grow 6 percent to 7 percent, the trade promotion agency said in a separate statement today.
  • Hedge Funds Cut Bullish Bets by Most in Seven Weeks: Commodities. Hedge funds cut bullish commodity bets by the most in seven weeks on mounting concern that Europe’s debt crisis will restrain global economic growth and demand for raw materials. Money managers reduced combined net-long positions across 18 U.S. futures and options by 10 percent to 754,558 contracts in the week ended Nov. 15, Commodity Futures Trading Commission data show. That’s the biggest decline since the seven days ended Sept. 27. Sugar wagers fell 30 percent, the most since December 2008, and bets on lower copper prices almost doubled.
  • U.S. Cheddar Cheese Plunges Most Since 2008 on Slowing Demand. U.S. cheddar-cheese prices plunged the most since December 2008 as grocers slowed purchases after stockpiling most of what they will need for the year-end holidays. The 40-pound blocks of cheddar traded on the Chicago Mercantile Exchange plunged 7.7 percent to $1.8325 a pound after touching a three-month high of $2 on Nov. 15. Prices still are up 27 percent from a year ago. Retail costs rose to a record $5.707 a pound in September, up 21 percent from a year earlier, Bureau of Labor Statistics data show.
  • U.S. Sets High Bar for Post-2020 Climate Accord, Stern Says. Climate-change deals reached at a United Nations meeting starting this month may be “completely silent” about how to combat global warming after 2020, the U.S. climate envoy said.
  • JPMorgan(JPM), Goldman Sachs(GS) Sued for Alleged MF Global Misstatements. JPMorgan Chase & Co. and Goldman Sachs Group Inc. units were sued by two pension funds over claims they made misleading statements about the exposure of MF Global Holdings Ltd. securities to European sovereign debt. As a result of the misstatements, MF Global’s stock traded at “artificially inflated prices,” the funds said in the complaint filed yesterday in federal court in Manhattan. “While the extent of MF Global’s exposure to European sovereign debt was concealed, the defendants were able to raise some $900 million in the offerings.” MF Global Holdings, which was run by former Goldman Sachs Group Inc. co-chief executive officer Jon Corzine, filed for bankruptcy Oct. 31 after making bets on sovereign debt and getting margin calls.
  • NYC Bomb Suspect Arrested: Mayor Bloomberg. New York police arrested a man who was plotting to build and explode a bomb in an attempt to kill government workers and military personnel, Mayor Michael Bloomberg said. The man had been under surveillance for more than a year, said Police Commissioner Raymond Kelly, who joined the mayor and District Attorney Cy Vance Jr. at a press conference tonight. Bloomberg identified the man as Jose Pimentel, 27, an unemployed resident of the Washington Heights section of Manhattan, and a native of the Dominican Republic. Pimentel is an “al-Qaeda sympathizer” who is accused of plotting to bomb police patrol cars, post offices, and members of the military returning from overseas, Bloomberg said.
  • Syria Won't 'Bow Down' as Security Forces Kill 12 Before Deadline Expires. Syrian President Bashar al-Assad’s declaration that he won’t “bow down” to international pressure forced the U.S. and its allies to weigh their next steps amid reports that security forces killed 12 more protesters in two cities.
  • Iran Nuclear Drive May End Arming Terrorists, Barak Tells CNN. Iran’s determination to build nuclear weapons will result in nations such as Egypt, Saudi Arabia and Turkey seeking nuclear arms, starting a “countdown” to terrorists getting nuclear materials, Israeli Defense Minister Ehud Barak said. “People understand now that Iran is determined to reach nuclear weapons,” Barak, a former Israeli prime minister, said on CNN’s “Fareed Zakaria GPS” in an interview to be aired today. “The countdown toward nuclear materials in the hands of terrorists will start, even if it takes half a generation. But more than this, they will use the nuclear umbrella to kind of intimidate neighbors all around the Gulf to sponsor terror.”
  • Russian Hopes of WTO Debt-Grade Boost Dashed by Rating Companies. Russia’s prospects for a higher debt grade after entering the World Trade Organization may not materialize because of the country’s investment climate and institutional weaknesses, rating companies said.
  • China's Property Market Reaches 'Tipping Point,' Nomura Says. China’s property market is reaching a “tipping point” and the slowdown in the housing industry will have a spillover effect on demand for steel and other construction materials, according to Nomura Holdings Inc. The risk of the nation’s economic growth falling to less than 8 percent in the first quarter is also higher than before because of the housing market, Zhang Zhiwei, a Hong Kong-based economist at Nomura, said on a conference call today. “The property sector has probably already reached a tipping point given the data is getting worse at a very fast pace,” Zhang said.
Wall Street Journal:
  • Deficit Effort Nears Collapse. The deficit-reduction supercommittee, stuck in a partisan deadlock, faces an almost certain collapse—raising the threat of disruptive military spending cuts and a resurgent public anger at Congress as it struggles with the basic tasks of governance. Barring an unlikely, last-second breakthrough, the committee is expected to announce Monday that it failed to reach its mandated goal of writing a bipartisan bill to reduce deficits over the next 10 years by at least $1.2 trillion. That expected failure injects a greater uncertainty into the nation's political and economic landscape heading into a volatile election year.
  • European Commission to Propose Shared Euro-Zone Representation at IMF. Europe's upcoming proposals to fight its debt crisis will include new economic rules for the continent and shared representation for euro-zone nations at the International Monetary Fund, a senior European Commission official said in an interview Saturday. Viviane Reding, a European Commission vice president, said the new steps to be unveiled Wednesday will show Europe building stronger ties to relieve mounting international doubts about the future of the 17-nation currency bloc.
  • Holiday Fear Mixed in With Cheer. For certain U.S. merchants, this Christmas is an especially crucial crossroad.
Marketwatch.com:
  • Europe Bond Dive Rooted in Greek CDS Deal. ‘Voluntary’ writedown of bonds dents CDS’ value as a hedge. The grand deal struck last month to keep Greece from default had an unintended consequence that’s encouraged investors to dump the debt of Italy, Spain and other countries, causing yields to spike, bond analysts say. “That’s why you saw Italian yields jump,” said Don Quigley, co-portfolio manager of the Artio Total Return Bond Fund. “If everyone that thought they were hedged with CDS (credit-default swaps) thinks they’re now worth nothing, they have to sell.” The Greek deal “was very short-sighted,” he said.
  • The Euro Must Be Split Up. The world’s greatest macroeconomic imbalances are not between the U.S. and China, as many believe, but within the not-so-united states of Europe. This is just one result of the currency and competitive distortions caused by what German Chancellor Angela Merkel calls the “common destiny” of economic and monetary union. Destabilizing European current-account imbalances will need to be eliminated, sooner or later, by splitting up the euro area into a creditor and a debtor group.
CNBC:
Business Insider:
 Zero Hedge:
IBD:
 NY Times:
  • Europe Fears a Credit Squeeze as Investors Sell Bond Holdings. Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral. Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations. If this trend continues, it risks creating a vicious cycle of rising borrowing costs, deeper spending cuts and slowing growth, which is hard to get out of, especially as some European banks are having trouble meeting their financing needs. The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt. At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world. “There’s a real sensitivity to being in Europe,” said David Glocke, head of money market funds at Vanguard. “When the noise gets loud it’s better to watch from the sidelines rather than stay in the game. Even highly rated banks, such as Rabobank, I’m letting mature.” The latest evidence that governments, too, are facing a buyers’ strike came Thursday, when a disappointing response to Spain’s latest 10-year bond offering allowed rates to climb to nearly 7 percent, a new record. A French bond auction also received a lukewarm response. Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis. Just as American policy makers assured the public then that the subprime problem could be contained, so European leaders thought until recently that the fiscal troubles of a small country like Greece would not spread. But after the bankruptcy last month of MF Global, spurred by its exposure to $6.3 billion of European debt, other institutions have raced to purge their portfolios of similar investments. “This is just a repeat of what we saw in 2008, when everyone wanted to see toxic assets off the banks’ balance sheets,” said Christian Stracke, the head of credit research for Pimco. “The biggest risk everyone is talking about is whether Italy can continue to fund itself,” said Pavan Wadhwa, an interest rate strategist at JPMorgan in London. He said Italy had auctions Nov. 25 and 29. Any sign that it is unable to sell its debt to investors would be troubling, he said. The prospect of slower growth across the Continent, and fears that budget deficits will balloon, is a major reason the selling has spread beyond Italian bonds to much stronger government borrowers with AAA credit ratings like France.
  • After Egypt's Revolution, Christians Are Living in Fear...
NY Post:
  • Congressional Payday. Hedge-fund mogul Raj Rajaratnam drew 11 years in lockup last month for insider trading. Martha Stewart got five months just for lying about it to federal agents. Members of Congress? Ha. For them, you see, trading on nonpublic information is perfectly legal. And, as a recent “60 Minutes” report — based on a new book, “Throw Them All Out,” by Peter Schweitzer — makes clear, lawmakers of both political parties partake of the practice with abandon. That’s right. It turns out that using information available to only a privileged few to profit on personal investments is strictly illegal — for everyone except congressmen.
Chicago Tribune:
  • Hedge Fund Exit Requests Up in November: GlobeOp. Redemption requests by hedge fund clients gathered pace in November as investors kick-started the traditional year-end evaluation of manager performance after a 2011 blighted by unprecedented volatility and erratic returns, recent data shows. The GlobeOp Forward Redemption Indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of GlobeOp's assets under administration, measured 3.44 percent this month, up from 2.51 percent in October. "We expect fund redemption requests to increase as year-end approaches," GlobeOp Financial Services SA Chief Executive Hans Hufschmid said, adding the volume of notices to call in cash this month was similar to the 3.22 percent seen in November 2010. With annual returns in many popular strategies close to zero or even dropping into negative territory, many hedge funds face a particularly stressful season of portfolio rebalancing. The average hedge fund is down 3.5 percent in the 10 months to then end of October, according to Hedge Fund Research, with equity and global macro funds losing 5.21 percent and 3.32 percent, respectively.
Seeking Alpha:
 Wall Street All-Stars:
  • S&P 500 Earnings Update - A Slow Drip Lower (by the numbers). Although not yet alarming, there is a slow drip lower occurring in the “forward 4-quarter” earnings estimates for the S&P 500, which this week came in at $104.55, versus $104.60 last week, and down slightly from the twin peak of $107 in late July and early October.
Reuters:
  • Hungary Eyes New IMF Deal Early Next Year. Hungary started talks with the International Monetary Fund and the EU about a new precautionary credit line to shield it from the storm engulfing the euro zone, but Budapest faces tough talks if it sticks to its unorthodox economic policies. For Prime Minister Viktor Orban, who previously rejected an IMF backstop, going back to the Fund is seen as a big political defeat. But he is unlikely to give in easily to the tough conditions the IMF usually sets when granting financing lines. Analysts said a new IMF agreement could help avoid a cut in Hungary's credit rating to "junk" status, but it will be very hard for the two sides to find common ground given the unconventional measures Hungary has made.
  • Retailers Adapt as Mobile Holiday Shopping Booms.
Financial Times:
  • Wall Street Has Reasons Not to Rush into Banks. Nothing unnerves Wall Street more at the moment than trying to quantify what exposure US banks may have to indebted countries and fellow financials in the eurozone. But, beyond an escalation of Europe’s debt crisis engulfing the global financial system, there are other sound reasons why US financials are struggling as they face a more tightly regulated and less profitable future.
  • Chinese Vice Premier Wang Qishan said the global economic situation is "extremely serious" and China will need to strengthen financial reforms to deal with the problems, citing state media.
  • Commission Proposes 'Eurobonds'. The introduction of a joint “eurobond” that would replace national issuance by individual members of the eurozone could offer the best solution for policymakers seeking a more stable sovereign debt market, according to a study by the European Commission. To be published on Wednesday, but seen by the Financial Times, the study argues that the creation of commonly backed “stability bonds” would ensure all eurozone members could meet their financing needs and create a vast market that could compete with US Treasuries as a global benchmark.
  • Hedge Funds: Managers Way of Taking Too Much 'Hot Money'. Where money has come back, it has been from an altogether different base of investors: the pension funds, insurance companies and endowments with which managers in the industry are now so keen to cultivate relationships. Private banks have gone from being one of the key conduits of investment into the hedge fund industry to being niche players. But many observers are predicting a return of high net worth individuals to the industry – particularly after these individuals’ traditional investment portfolios have suffered so badly this year.
  • Hedgies Gain From Prop Trade Fall-Off. A severe contraction in investment banks’ proprietary trading activities is “democratising” investment opportunities by opening up space for hedge funds to expand, according to BlackRock Alternative Investors.
Telegraph:
Times:
  • The European Commission will announce proposals to take tighter control of public finances of euro-zone states on Nov. 23, citing people in Brussels. The plans would give the European Union's regulator power to send budget inspectors into government departments of the 17 members of the currency union and officials may have the right to address parliaments to explain the commission's views. The regulations would also permit the commission to suggest changes to national budgets.
FAZ:
  • J.J. Sietas KG, Germany's oldest shipyard, has filed for insolvency because it can't pay debt and salaries, citing an interview with CEO Ruediger Fuchs.
Schleswig-Holstein am Sonntag:
  • German Economy Minister Philipp Roesler said the European Central Bank isn't responsible for buying the region's debt because the European Financial Stability Facility was put in place to help countries reduce interest rates on their debt.
Leipziger Volkszeitung:
  • Rainer Bruederle, parliamentary leader of Germany's Free Democratic Party, said the European Central Bank should return to its main task of securing monetary stability rather than buying bonds of indebted euro-zone countries, citing an interview with Bruederle.
NZZ am Sonntag:
  • UBS AG expects outflows of as much as $32.7 billion from its wealth business in a "worst case scenario," citing an interview with CEO Sergio Ermotti. That estimate is based on the impact of tax agreements with an unspecified number of European countries.
Ottawa Citizen:
  • Pipeline Decision Will Weaken Obama. The pipeline has suffered the worst fate possible: it became a symbol. To those convinced of an apocalyptic vision of a society hurtling toward environmental Armageddon, XL came to represent the sum of all their fears. Combine that with an environmental movement moving strategically to throttle the oilsands by closing off its access to markets, and you had a political force that made up in passionate intensity what it lacked in either logic or votes. President Barack Obama thinks he has thrown them a bone. Instead what he has done is to give comfort to a Luddite movement that thinks you can make modernity go away by holding your breath until your face turns blue. The problem is that they may get their wish.
Xinhua:
  • The Chinese central government may loosen credit for the property market and limits on home purchases in the third quarter of 2012, citing a report published by Renmin University of China.
Caixin:
  • China should cut banks' reserve requirement ratios and "appropriately" raise interest rates at the same time to help curb inflation, citing Fan Jianping, chief economist at the State Information Center.
Jerusalem Post:
  • Egypt: 'At least 12 dead in Tahrir Square protests' Medical sources in Cairo report rising death toll as police, military charge activists calling for transferal of power to civilian gov't. Police backed by the army used batons and teargas on Sunday to charge protesters in Cairo's Tahrir Square demanding Egypt's ruling generals swiftly hand power to civilians, in some of the worst violence since the overthrow of Hosni Mubarak. Medical sources said as many as 12 died in Sunday's violence. With little more than a week to go before a parliamentary election that starts the process of transition, the state news agency reported three dead in a second day of violence on Sunday and 192 wounded.
Weekend Recommendations
  • None of note
Night Trading
  • Asian indices are -2.50% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 215.50 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 160.50 -.5 basis point.
  • FTSE-100 futures -1.10%.
  • S&P 500 futures -.77%.
  • NASDAQ 100 futures -63%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (TECD)/1.27
  • (TSN)/.31
  • (ADI)/.64
  • (BRCD)/.10
  • (BWS)/.52
  • (PSS)/.53
  • (DY)/.30
  • (HPQ)/1.13
  • (JACK)/.28
Economic Releases
8:30 am EST
  • The Chicago Fed Nat Activity Index for October is estimated to rise to .19 versus -.22 in September.

10:00 am EST

  • Existing Home Sales for October are estimated to fall to 4.8M versus 4.91M in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, 2-Year Treasury Note Auction, Eurozone insurers releasing interest rate stress test results and the IMF's LaGarde speaking could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.
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Sunday, November 20, 2011

Weekly Oujtlook

Posted by Gary .....at 4:44 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 mixed as global growth worries, US debt super committee concerns, rising Eurozone debt angst and tech sector pessimism offsets short-covering, seasonality, bargain-hunting and lower food/energy prices. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.
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