Tuesday, February 14, 2012

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Less Financial Sector Optimism, Global Growth Fears, Profit-Taking

Posted by Gary .....at 4:05 PM

Broad Market Tone:
  • Advance/Decline Line: Sharply Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 20.56 +7.98%
  • ISE Sentiment Index 78.0 +9.86%
  • Total Put/Call 1.02 +17.24%
  • NYSE Arms 1.21 +24.84%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.39 +.86%
  • European Financial Sector CDS Index 190.96 +5.02%
  • Western Europe Sovereign Debt CDS Index 336.82 +1.41%
  • Emerging Market CDS Index 260.39 +.99%
  • 2-Year Swap Spread 29.0 -.5 bp
  • TED Spread 38.50 -2.0 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -72.25 -4.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .11% +1 bp
  • Yield Curve 164.0 -7 bps
  • China Import Iron Ore Spot $142.20/Metric Tonne -1.83%
  • Citi US Economic Surprise Index 68.50 +2.3 points
  • 10-Year TIPS Spread 2.21 -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +19 open in Japan
  • DAX Futures: Indicating -26 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Retail, Medical and Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower on rising Eurozone debt angst, less financial sector optimism, rising global growth fears, profit-taking and technical selling. On the positive side, Oil Tanker, Computer, Semi and HMO shares are slightly higher on the day. The UBS-Bloomberg Ag Spot Index is falling -.86% and Gold is falling -.45%. Oil continues to trade poorly, given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and rising Mid-east tensions over the last few weeks. On the negative side, Coal, Alt Energy, Steel, Bank, REIT and Education shares are under meaningful pressure, falling more than -2.0%. Cyclicals and small-caps are relatively weak. Financial shares are also underperforming today. Copper is falling -.86% and Lumber is down -2.7%. The Spain sovereign cds is gaining +2.31% to 375.33 bps(+8.5% in 5 days), the France sovereign cds is gaining +2.86% to 186.50 bps(+14.7% in 5 days), the Italy sovereign cds is rising +.93% to 401.67 bps(+6.8% in 5 days) and the Belgium sovereign cds is gaining +1.8% to 227.67 bps(+9.3% in 5 days). The European Financial Sector CDS Index has risen +19.7% in 5 days. Lumber is flat since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is -5 bps to 1.92% today, which remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. Weekly retail sales rose +2.6% this week versus a +2.5% gain the prior week. This remains a subpar rate for a recovery. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -22.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +618.0% ytd to a new all-time high as they eclipsed their April 2010 record today. Stocks are cutting losses on news that Greece will deliver a letter of commitment tomorrow to lenders, however I still view it as highly unlikely they will meet those commitments over the intermediate-term. I still see little evidence to suggest that Europe's debt crisis won't flare up again in an even more intense fashion down the road. Investor sentiment remains too complacent, however performance angst is likely already a factor in some circles, which is a positive. The fact that the tech sector and broad market have stalled with market-leader (AAPL) soaring is another negative. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. One of my longs, (ISRG), is hitting a new all-time high today. The stock is extended short-term, however longer-term I still see outperformance for the shares. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, less financial sector optimism, technical selling, profit-taking and more shorting.
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Today's Headlines

Posted by Gary .....at 2:43 PM

Bloomberg:
  • Greece Struggles to Win Second Bailout. European officials jacked up the pressure on the Greek government to deliver budget cuts in exchange for a second bailout as they insisted that default is not an option. Finance ministers canceled a Brussels meeting slated for tomorrow and will hold a teleconference instead to prod Greece to do more to clinch an aid package worth 130 billion euros ($170 billion) along with roughly 100 billion euros of debt relief from private bondholders. “I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program,” Luxembourg Prime Minister Jean- Claude Juncker, chairman of the euro finance panel, said in a statement today. He also pressed for “further technical work” on Greek budget cuts. Two years after pledging to pull Greece back from the brink, European leaders are torn between pouring more aid into the struggling economy or risking an unprecedented national bankruptcy that might force the country out of the euro and prompt renewed tumult in European markets. Finance ministers will discuss “outstanding issues” tomorrow and hold their next meeting as scheduled on Feb. 20, Juncker said. The postponement pushed the euro down to $1.3115 at 7 p.m. Brussels time from $1.3150 earlier.
  • Greek Economy Shrank 6.8% in 2011, More Than Forecast. Greece's economy, reeling from austerity measures demanded by creditors in exchange for rescue funds, contracted almost a percentage point more last year than the government forecast, according to Bloomberg calculations. Gross domestic product fell 7 percent from a year earlier in the fourth quarter after contracting a revised 5 percent on an annual basis in the previous three months, the Athens-based Hellenic Statistical Authority said in an e-mailed statement today. GDP declined 6.8 percent in 2011, according to Bloomberg calculations, compared with a 6 percent contraction estimated in the government's 2012 budget.
  • ECB Risks Repeat of Ruble Zone Failure, Citigroup's Buiter Says. The European Central Bank risks repeating the mistakes of policy makers after the Soviet Union’s break-up that led to the collapse of the ruble as a regional currency, according to Citigroup Inc. chief economist Willem Buiter. By allowing national central banks to expand their balance sheets at varying rates, the Frankfurt-based ECB’s policies echo condition following the collapse of the Soviet Union, Buiter wrote in a report today. Successor states initially shared a monetary union called the ruble zone only for it to collapse because of a lack of policy cohesion. The ECB may be following a “road at whose end awaits the complete ‘Rublezonefication’ of the common monetary, credit and liquidity policy into 17 different national policies and, ultimately, a fracturing of the monetary union into multiple independent national monetary regimes,” Buiter wrote.
  • European Industrial Output Declines 1.1%, Led by Germany. European industrial production declined in December led by a slump in Germany, adding to signs the region may have slipped into its second recession in three years. Production in the 17-nation euro area fell 1.1 percent from November, when it remained unchanged, the European Union’s statistics office in Luxembourg said today. Economists had forecast a drop of 1.2 percent, the median of 36 estimates in a Bloomberg News (EUITEMUM) survey showed. From a year earlier, production decreased 2 percent. The region’s economy probably failed to grow in the fourth quarter as governments toughened austerity measures, undermining spending and hiring, just as global exports weakened.
  • Sovereign Bond Risk Rises as Moody's Cuts Italy, Spain Ratings. The cost of insuring European sovereign debt rose after Moody's Investors Service cut the ratings of six of the region's governments, including Spin and Italy, and lowered its outlook on France and the U.K. The Markit iTraxx SovX Western Europe Index of cds on 15 governments rose for a fifth day, climbing three basis points to a two-week high of 332 at 10 am in London. Swaps on Spain climbed six basis points to 372, Italy rose two to 402 and the U.K. was up two at 76, all the highest levels in two weeks, according to CMA. Contracts on the Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was unchanged at 221 basis points and the subordinated index was up 3.5 basis points at 373.5.
  • Emerging Stock Rally May Fade as Bulls Increase, Strategists Say. The biggest purchases of emerging- market stocks by global money managers in more than a decade and the largest mutual-fund inflows in 15 months are signs to Bank of America Corp. and Morgan Stanley that the rally in developing-nation shares may pause. A net 44 percent of investors surveyed by Bank of America this month said they had "overweight" positions in emerging markets, up from 20 percent in January, the biggest monthly increase since 2001, according to a report today. Developing- nation stock funds lured $5.8 billion in the week ended Feb. 8, the most since October 2010, EPFR Global data show.
  • Egypt Minister Says U.S. Used NGOs to Sow Chaos, Ahram Says. Egypt’s planning minister has told investigators that the U.S. directly funded non-governmental organizations in the country with the aim of sowing chaos after the fall of Hosni Mubarak, the state-run Al Ahram newspaper said. Fayza Aboulnaga said the U.S. aimed to thwart a “historic opportunity” for Egypt to regain its regional and international stature, the Cairo-based newspaper said. Egypt has referred 43 people, including the son of U.S. Transportation Secretary Ray LaHood, to trial after a probe into foreign funding of NGOs. The inquiry has added to strains between the U.S. and Egypt and jeopardized American financial aid to the Egyptian military, a close ally.
  • Oil-Tanker Glut Is Unchanged From Four-Week High, Survey Shows. A surplus of the largest oil tankers competing to load crude at Persian Gulf ports stayed unchanged after reaching a four-week high last week, a survey showed. There are 10% more VLCCs available for hire over the next 30 days than there are likely cargoes, according to a Bloomberg survey of seven shipbrokers and owners today. The glut was the biggest since Jan. 10 as of last week.
  • Syria Army Shells Homs as UN Urges International Action. Syria’s army fired artillery at the city of Homs as the United Nations’ top human-rights official, Navi Pillay, urged international action to protect civilians. Security forces resumed shelling the Baba Amr neighborhood at 6 a.m. today and carried out attacks in the southern province of Daraa and Idlib, killing at least 20, Rami Abdel Rahman, head of the U.K.-based Syrian Observatory for Human Rights, said by phone. The assault on Homs began 10 days ago. “The humanitarian situation is very bad, food and medicine are scarce, and there is no electricity,” said Abdel Rahman, who is in touch with a network of activists in Syria. The shelling of Baba Amr today was the “fiercest” of the past five days, he said. Nationwide, about 20 people died yesterday, he said, including in the city of Rastan, which was hit by heavy artillery and machine-gun attacks.
  • Retail Sales in U.S. Rise, Below Forecasts. Sales at U.S. retailers rose less than forecast in January, reflecting an unexpected drop in purchases of automobiles. The 0.4 percent gain reported by the Commerce Department today in Washington was half the 0.8 percent rise median forecast of economists surveyed by Bloomberg News. Purchases excluding car dealers climbed 0.7 percent, more than projected and the biggest gain since March. “Consumers are being very picky at this point,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “We saw aggressive retailer discounting and sharp price cuts in the new year. It bodes poorly for retailers’ margins.” Purchases were also revised down 0.1 percentage point in each of the prior two months -- to unchanged in December and a 0.3 percent rise in November. Stagnant yearend sales prompted economists at Morgan Stanley to trim their tracking estimates for consumer spending in the fourth quarter and first three months of 2012.
  • Philly Fed Boss Warns Against Speeding Recovery. The head of the Philadelphia Federal Reserve Bank warned Tuesday against efforts to accelerate the nation's economic recovery, citing the threat of inflation. Speaking at the University of Delaware, Charles Plosser said the Fed already has taken several steps to help revive the economy, and that with a very accommodative monetary policy already in place, officials must guard against the medium and longer-term risks of inflation. "Inflation risks in the near term, I think, remain modest," he said. "However, I do remain concerned that monetary policy actions have exposed us to substantial inflation risks over the medium and longer term." Plosser noted that the Fed has kept the federal funds rate near zero for more than three years to support the economic recovery. The Fed also has conducted two rounds of asset purchases that have more than tripled the size of its balance sheet and changed its composition from short-term Treasuries to longer-term Treasuries and mortgage-backed securities. "Today, we are in a modest recovery from a very deep recession and a financial crisis," Plosser said. "The financial crisis has passed, however, and monetary policy should not continue to act as if the financial crisis is still upon us." Plosser said he did not support the Federal Open Market Committee's announcement last month that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through late 2014, 18 months longer than the mid-2013 date the Fed first signaled in August. "I think economic conditions, as they have evolved even since late last year, do not call for further accommodation," Plosser said. "In fact, the economy has actually improved. Moreover, I continue to oppose using calendar dates to communicate forward guidance."
Wall Street Journal:
  • China's Military Spending to Double by 2015 - Report. China’s defense budget will double by 2015, making it more than the rest of the Asia Pacific region’s combined, according to a report from IHS Jane’s, a global think tank specializing in security issues.
  • EU Says Many Members Vulnerable. Twelve European Union member nations, including Italy, Spain, the U.K. and France, are suffering from significant economic imbalances that leave them vulnerable to further shocks, the European Commission is to say. In a document due to be released Tuesday at 0900 ET by European Economics Commissioner Olli Rehn, the EU's executive arm said it will conduct an in-depth analysis into nearly half of the EU's 27 members, which could eventually lead to demands for policy changes and potentially even sanctions.
  • Exclusive: Yahoo(YHOO) Asia Deal Talks Off For Now.
  • Solar Firm Films for Chapter. 11. Energy Conversion Devices Inc., a pioneering Michigan-based solar-technology company, filed for bankruptcy protection Tuesday with a plan to slash its debt and sell its business at a court-supervised auction. The Auburn Hills, Mich., company filed for Chapter 11 protection in U.S. Bankruptcy Court in Detroit after it was unable to come to terms on an out-of-court deal with its convertible bondholders, according to Michael E. Schostak, director of business development at Energy Conversion Devices.
  • China Deflects Criticism Over Syria. Chinese Premier Wen Jiabao and other senior leaders defended Beijing's handling of the crisis in Syria amid growing international criticism that threatens to cast a shadow over a visit to the U.S. by Vice President Xi Jinping. Mr. Wen, speaking at a news conference on Tuesday at an EU-China summit in Beijing, said China was working to prevent the spread of violence in Syria. He was addressing recent criticism from the U.S., Europe and others that Beijing's unwillingness to support measures against Syria at the United Nations was a key hurdle to restoring peace there.
CNBC.com:
Business Insider:
Zero Hedge:
New York Times:
  • French Candidate Assails Plan for Greece. The front-runner for the French presidency, the Socialist candidate François Hollande, criticized European policy on Greece on Monday, saying that mandatory austerity measures were too severe and would never produce the desired results because “everyone knows” that “there is no rebound in growth in Europe and in Greece.” The Greek government, he said, would “have a short life,” while the austerity plan forced on Greece amounted to a “purge.”
  • Portugal's Debt Efforts May Be a Warning for Greece. Unlike Greece, Portugal is a debtor nation that has done everything that the European Union and the International Monetary Fund have asked it to, in exchange for the 78 billion euro (about $103 billion) bailout Lisbon received last May. And yet, by the broadest measure of a country’s ability to repay its debts, Portugal is going deeper into the hole. The ratio of Portugal’s debt to its overall economy, or gross domestic product, was 107 percent when it received the bailout. But the ratio has grown since then, and by next year is expected to reach 118 percent. That’s not necessarily because Portugal’s overall debt is growing, but because its economy is shrinking. And economists say the same vicious circle could be taking hold elsewhere in Europe.
  • OECD Urges Germany to Address Its Own Economic Weak Spots. The vaunted German economy remains over-regulated and suffers from other weaknesses that could cause growth to slow significantly in coming years, the Organization for Economic Cooperation and Development said Tuesday. In what amounted to a warning against complacency by German leaders, the O.E.C.D. said that the country needs to do more to encourage women and older people to work; strengthen its fragile banking system; and remove regulations that discourage competition among lawyers, engineers and other professions.
Rasmussen Reports:
  • 59% of Catholics Disapprove of Obama's Job Performance. Catholics strongly disapprove of the job President Obama is doing as the debate continues over his administration’s new policy forcing Catholic institutions to pay for contraception they morally oppose. While the president’s overall job approval ratings have improved over the past couple of months, they have remained steady among Catholics. A new Rasmussen Reports national telephone survey finds that 59% of likely Catholic voters nationwide at least somewhat disapprove of the president’s job performance, while 40% at least somewhat approve. But the passion’s on the side of those who don’t like the job he’s doing: 44% Strongly Disapprove versus 19% who Strongly Approve.
Reuters:
  • EU to Punish Spain for Deficits, Inaction. The European Union is likely to take action against Spain's newly installed government by May for delaying austerity measures ahead of a regional election next month, sources familiar with the situation have told Reuters. A final decision still has to be made, but the European Commission believes the new government overstated the deficit figures for 2011 so the current year's data would look better. Spain is also not addressing quickly enough the deterioration in public finances expected in 2012, risking the country's longer-term growth, three senior EU officials said. Asked if the European commissioner for economic and monetary affairs, Olli Rehn, would take action and recommend that the bloc's 27 finance ministers adopt sanctions against Madrid, one of the officials said: "It is very likely." "It is not that we want to. But if there is a deviation, and it is almost inevitable, then we will have to," added the official, who spoke on condition of anonymity.
  • Copper Slides in Sign of Deepening Correction.

USA Today:

  • Pew Study: 1 in 8 Voter Records Flawed. More than 24 million voter-registration records in the United States— about one in eight — are inaccurate, out-of-date or duplicates. Nearly 2.8 million people are registered in two or more states, and perhaps 1.8 million registered voters are dead.

Telegraph:

  • Debt Crisis: Live. Tomorrow's meeting to discuss the second Greek bail-out has been called off amid accusations that the debt-stricken country has failed to offer the required political pledges, as Britain is labelled an economy at risk by the EU.

Handelsblatt:

  • An agreement under which private investors would voluntarily take a 70% losss on Greek debt may not result in the targeted writedown of about $132 billion because not enough bondholders accept the terms of the proposal, citing central bankers. While a deal will likely be announced tomorrow as planned, Greece may have to introduce legislation that would bind all bondholders to the revised terms once 50% of the investors agree to the plan.
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Bear Radar

Posted by Gary .....at 1:32 PM

Style Underperformer:
  • Small-Cap Value -1.01%
Sector Underperformers:
  • 1) Coal -3.30% 2) Steel -2.30% 3) Banks -1.85%
Stocks Falling on Unusual Volume:
  • FCX, RIO, C, AIXG, BP, PERY, CPN, KEP, NAV, RUSH/A, GT, IYM, FSYS, SREV, AVAV, ACI, UTHR, BGC, CPN, PPO, CLD, LL, ALEX, FSLR, SGEN, USTR, GNRC, ALNY, MAS, DLPH, ZBRA, IHG and ZIP
Stocks With Unusual Put Option Activity:
  • 1) GT 2) NOG 3) GNK 4) ZNGA 5) FOSL
Stocks With Most Negative News Mentions:
  • 1) ACI 2) BAC 3) WMT 4) RYL 5) TSL
Charts:
0 comments

Bull Radar

Posted by Gary .....at 11:13 AM

Style Outperformer:
  • Mid-Cap Growth -.10%
Sector Outperformers:
  • 1) HMOs +.35% 2) Computer Hardware -.01% 3) Tobacco -.20%
Stocks Rising on Unusual Volume:
  • KORS, TTM, HSP, TAL, VAL, FIS, LPSN, MDAS, OSG, RAX, FIS, CRL, FOSL and CLR
Stocks With Unusual Call Option Activity:
  • 1) KORS 2) RAX 3) KERX 4) DSX 5) OAS
Stocks With Most Positive News Mentions:
  • 1) RAX 2) JEC 3) ASIA 4) FWLT 5) GGP
Charts:
0 comments

Tuesday Watch

Posted by Gary .....at 12:17 AM

Evening Headlines
Bloomberg:
  • Italy, Spain Cut by Moody's; U.K. May Be Next. Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis. Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered. “Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.” “The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework,” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said. Recent rating cuts have done little to deter investors, who poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month. U.S. Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August. Moody’s yesterday also lowered its outlook on Austria’s Aaa rating to negative. Malta’s rating was downgraded to A3 from A2, and Slovakia and Slovenia were both downgraded to A2 from A1. All three were given negative outlooks. Moody’s said Europe’s “increasingly weak macroeconomic prospects” threaten the “implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.” It said market confidence “is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”
  • Immigrants Lose in Imploding Spanish Housing Market: Mortgages. Lamin Numke, a 34-year-old man from the Republic of Mali, is one of the millions of immigrants who settled in Spain during the real-estate boom, attracted by plentiful jobs and cheap mortgages, only to default on his loan. Today, borrowers like Numke are the most likely to fall behind on mortgage payments and lose their property, according to a Moody’s Investors Service study of 890,000 mortgages from 2006 through 2008. The average default rate for foreign residents is “strikingly high compared with mortgage loans to Spanish residents,” Moody’s wrote in the report last month. Faced with mounting losses, Spanish banks have reduced new lending, which the National Statistics Institute in Madrid said fell 35.8 percent from a year earlier in November, the 19th straight decline. The bad loans to immigrants are also complicating a push for Spanish banks to recognize greater losses on real estate they accumulated during the crash and driving buyers from the 182 billion euro ($240 billion) Spanish residential mortgage-backed securities market. “Deals with a significant portion of foreign residents, whether immigrants or vacationers, are double no deals for me,” said Alexander Fagenzer of Union Investment GmbH in Frankfurt, which oversees 120 billion euros. “Incentives for those borrowers to keep paying are significantly lower than for Spanish residents,” and that’s “key in a country facing high levels of unemployment and declining housing prices.”
  • Zinc Glut Rising to Two-Decade High. The largest glut of zinc in almost two decades is threatening to curtail a rally in prices as record production expands inventories to the highest since at least 1984. Supply will outpace demand by 539,000 metric tons, the most since 1993, according to Standard Bank Plc. Stockpiles of the metal used in brass and steel will reach 2.2 million tons, Barclays Capital estimates. Prices will drop 13 percent to $1,832 a ton this year, the median of 15 analyst and trader estimates compiled by Bloomberg shows.
  • State Department Budget Bolsters Middle East Aid, Trims Europe. President Barack Obama’s budget seeks $8.2 billion in “extraordinary and temporary” funding for State Department responsibilities in Iraq, Afghanistan and Pakistan. The request comes on top of the $43.4 billion proposed for the “core” budget for the State Department and the U.S. Agency for International Development, which manages foreign aid. The budget includes funding for Egypt, despite the current dispute over U.S. staff of nonprofit groups being threatened with felony and misdemeanor charges for not registering or for engaging in political activity. The budget calls for $1.3 billion in assistance to the military, $1.8 million in military education and another $250 million in economic assistance. U.S. lawmakers have threatened to cut off funding until Egypt lifts the charges and lets the Americans return home.
  • BOJ Adds to Monetary Easing After Contraction. The Bank of Japan added to monetary easing after exports tumbled and the economy contracted by more than forecast in the fourth quarter. Governor Masaaki Shirakawa’s board unexpectedly expanded an asset-purchase program to 65 trillion yen ($835 billion) from 55 trillion yen. The central bank maintained the overnight lending rate at between zero and 0.1 percent.
Wall Street Journal:
  • Canada Examine How Benchmark Rates Get Set. Canada's top antitrust watchdog said it is investigating allegations of collusion in the setting of key benchmark interest rates, joining law-enforcement authorities across the globe in a probe of how the rates are set.
  • Chinese Hackers Suspected In Long-Term Nortel Breach. For nearly a decade, hackers enjoyed widespread access to the corporate computer network of Nortel Networks Ltd., a once-giant telecommunications firm now fallen on hard times. Using seven passwords stolen from top Nortel executives, including the chief executive, the hackers—who appeared to be working in China—penetrated Nortel's computers at least as far back as 2000 and over the years downloaded technical papers, research-and-development reports, business plans, employee emails and other documents, according to Brian Shields, a former 19-year Nortel veteran who led an internal investigation.
  • Europe Struggles Over Greek Details. European Union negotiators have yet to settle key elements of a complex bailout and debt-restructuring package for Greece—including how euro-zone governments will contribute to a desired cut in the country's debt burden—ahead of a pivotal meeting this week. The Greek Parliament's backing for a deeply unpopular package of spending, wage and pension cuts, which sent European stocks and the euro higher on Monday, has shifted the focus of negotiations back to Brussels, ahead of a meeting of finance ministers due to start here Wednesday afternoon.
  • The Amazing Obama Budget. Federal budgets are by definition political documents, but even by that standard yesterday's White House proposal for fiscal year 2013 is a brilliant bit of misdirection. With the abracadabra of a tax increase on the wealthy and defense spending cuts that will never materialize, the White House asserts that in President Obama's second term revenues will soar, outlays will fall, and $1.3 trillion annual deficits will be cut in half like the lady in the box on stage. All voters need to do is suspend disbelief for another nine months. And ignore the first four years.
MarketWatch:
  • BHP(BHP), Rio(RIO) invest more than $4 bln in copper output. BHP Billiton Ltd. BHP -0.17% and Rio Tinto PLC RIO +0.41% , two of the world's biggest mining companies, Tuesday laid out plans to invest more than US$4 billion beefing up their copper output. Most of the money will be invested in the Escondida mining operation southeast of the city of Antofagasta in Chile, and BHP also plans to resume operations at its idled Pinto Valley mine in Arizona by the end of the year.
Zero Hedge:
 IBD:
 Forbes:
  • President Obama's Green Jobs Mirage. In recent weeks, President Obama has cranked up his commitment to federal subsidies for “green” energy in the face of accumulating defaults by the politically connected companies. “I will not walk away from the promise of clean energy,” as he declared at his State of the Union. “I will not cede the wind or solar or battery industry to China or Germany.” The President can make as many grand pronouncements as he likes, but the actual results of his green energy efforts have been paltry in terms of jobs and industry growth—and fiscal irresponsibility.
CNN:
  • Dumping China for American Job Shops. U.S. small businesses that initially rushed to Chinese factories to get their products made are now dumping them for American manufacturers. And the shift is gaining traction, said industry experts who match U.S. small companies with domestic firms. Mitch Free, the founder and CEO of Atlanta-based MFG.com, said his company has seen a 15% uptick in inquiries since 2009 from U.S. firms looking for American factories to replace their Chinese suppliers. MFG.com is one of the largest online directories used by businesses to find domestic manufacturers. One reason behind the trend is that "Chinese manufacturing has become expensive," Free explained.
LA Times:
 Rasmussen Reports:
Reuters:
  • Asia Banker Pay Down As Much As 40% As Slowdown Hits. Global investment banks have cut pay in Asia by between 30 and 40 percent for last year , with many bankers receiving no bonus at all and pay for star performers flat at best as a global sector slowdown bites, industry recruiters and sources within banks said.
  • Greece Must Meet All Terms To Stay In Euro. Failure by Greece to meet all the conditions laid down by Europe and the International Monetary Fund for new bailout funds would lead to its exit from the euro zone, Luxembourg's finance minister said on Monday. Markets have adjusted and sufficient firewalls have been erected in Europe to limit the financial damage should Greece decide to default and leave the monetary union, Luc Frieden said. "I still think that we should do our best to keep the euro zone with all its members. But again, the key lies with Greece today," Frieden told the Atlantic Council after meeting with the U.S. Treasury. "And therefore if the Greek people or the Greek political elite do not apply all of these conditions -- and I do know that is very difficult for the Greek people and I do not underestimate the problems that it creates for Greece -- if they don't do this, I think they exclude themselves from the euro zone and the impact on other countries now will be less important than a year ago."
Financial Times:
  • France To Push On With Trading Tax. France is determined to press ahead with a financial transaction tax inspired by the UK’s stamp duty and supported by at least eight other eurozone countries, the country’s finance minister has said.
  • Bull Run On Subprime Debt Divides Investors. Investors have regained their taste for “toxic” mortgage debt. Securities related to subprime and other risky home loans that were at the heart of the 2008-09 financial crisis have embarked on an unexpected bull run. This stellar performance has divided analysts. Some argue that an improving US economy and the steep fall in the price of these securities last year leaves plenty of room for further gains.
  • Derivatives Reform: We Are None The Wiser.
Telegraph:

South China Morning Post:
  • Europe Must Wake Up To China's Role In Debt Crisis. Forget misguided talk about China bailing out euro zone's debt-stricken economies, as East's economic emergence was one of drama's main triggers. In short, European governments and their voters failed to recognize what Indian essayist Pankaj Mishra describes as "the extent to which welfare state liberalism depended on ... the continuing somnolence of the 'East'." Today Europe needs urgently to wake up to the fact that China and other East Asian economies are no longer asleep. In a world in which Europe's economic competitors provide minimal social safety nets for their populations, many European countries can no longer afford their own lavish state welfare provisions, especially if they are funded by debt. This is a deeply unpopular message. But if Europe's southern periphery is ever to escape the debt trap it has fallen into, it cannot look to China for assistance. Instead, it must recognize that China's economic emergence is one of the main reasons the region is in its current hole, and act quickly to restore its lost competitiveness.
Shanghai Securities News:
  • China won't increase loans or debt issues to overcome economic difficulties, citing former Chinese central bank deputy governor Wu Xiaoling. The government will be "cautious" about lending and issuing debt this year.
  • China's outstanding loans to local government financing vehicles were 9.1t yuean as of Sept. 30, citing data. Of that total, almost 3t yuan is being managed as ordinary corporate loans. About 65% of the outstanding loan was backed by collateral.
Evening Recommendations
Capstone:
  • Rated (GOOG) Buy, target $750.
  • Rated (DMD) Buy, target $11.
  • Rated (TRIP) Buy, target $22.
Night Trading
  • Asian equity indices are -.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 164.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 134.0 -4.5 basis points.
  • FTSE-100 futures -.11%.
  • S&P 500 futures -.29%.
  • NASDAQ 100 futures -.16%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (CPLA)/.91
  • (MMC)/.45
  • (FOSL)/1.77
  • (GT)/.21
  • (HST)/.30
  • (OMC)/.95
  • (AVP)/.51
  • (BWA)/1.17
  • (VMI)/1.67
  • (MET)/1.24
  • (ZNGA)/.03
Economic Releases
7:30 am EST
  • The NFIB Small Business Optimism Index for January is estimated to rise to 95.0 versus 93.8 in December.

8:30 am EST

  • The Import Price Index for January is estimated to rise +.3% versus a -.1% decline in December.
  • Advance Retail Sales for January are estimated to rise +.8% versus a +.1% gain in December.
  • Retail Sales Less Autos for January are estimated to rise +.5% versus a -.2% decline in December.
  • Retail Sales Ex Auto & Gas for January are estimated to rise +.5% versus unch. in December.

10:00 am EST

  • Business Inventories for December are estimated to rise +.5% versus a +.3% gain in November.

Upcoming Splits

  • (MNST) 2-for-1

Other Potential Market Movers

  • The Fed's Lockhart speaking, Fed's Plosser speaking, Greece Bill Auction, Italy Bond Auction, Spain Bond Auction, weekly retail sales reports, Pac Crest Emerging Tech Summit, Stifel Nicolaus Transports Conference, Deutsche Bank Small/Mid-Cap Conference, Goldman Tech/Internet Conference and the (SMG) Analyst Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
1 comments

Monday, February 13, 2012

Stocks Rising into Final Hour on Euro Bounce, More Financial Sector Optimism, Short-Covering, Investor Performance Angst

Posted by Gary .....at 3:40 PM

Broad Market Tone:
  • Advance/Decline Line: Sharply Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.12 -8.03%
  • ISE Sentiment Index 63.0 +3.28%
  • Total Put/Call .87 -19.44%
  • NYSE Arms .93 -26.76%
Credit Investor Angst:
  • North American Investment Grade CDS Index 97.55 -.54%
  • European Financial Sector CDS Index 181.47 +.50%
  • Western Europe Sovereign Debt CDS Index 331.90 -.12%
  • Emerging Market CDS Index 258.0 -2.69%
  • 2-Year Swap Spread 29.5 +1.5 bps
  • TED Spread 40.50 -2.0 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -68.25 +4.5 bps
Economic Gauges:
  • 3-Month T-Bill Yield .10% +2 bps
  • Yield Curve 171.0 +2 bps
  • China Import Iron Ore Spot $142.20/Metric Tonne -.35%
  • Citi US Economic Surprise Index 68.50 -4.8 points
  • 10-Year TIPS Spread 2.24 +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +24 open in Japan
  • DAX Futures: Indicating +15 open in Germany
Portfolio:
  • Higher: On gains in my Biotech, Tech, Medical and Retail sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs and tests July 2011 highs, despite Eurozone debt angst, rising global growth fears, profit-taking and technical selling. On the positive side, Paper, Biotech, HMO, Homebuilding and Airline shares are especially strong, rising more than 2.0%. Small-caps have outperformed throughout the day. (XLF) is also outperforming. Major Asian indices rose around +.5% overnight, led by a +1.5% gain in Indonesian shares. Major European indices also gained around +.5%, led by a +.9% gain in the UK. Lumber is gaining +1.85%. Oil continues to trade poorly, despite today's bounce, given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and rising Mid-east tensions over the last few weeks. On the negative side, Utility, Coal, Oil Tanker, Gaming, Alt Energy, Oil Service, Steel, Computer, Semi, Networking, Computer Service, Retail and Restaurant shares are lower-to-just slightly higher on the day. Tech shares are underperforming today. Copper is falling -.63%, Oil is rising +1.8% and the UBS-Bloomberg Ag Spot Index is rising +1.04%. The Germany sovereign cds is gaining +.59% to 85.67 bps, the Spain sovereign cds is gaining +1.22% to 367.57 bps, the France sovereign cds is gaining +1.9% to 180.67 bps, the Italy sovereign cds is rising +.76% to 396.33 bps and the Japan sovereign cds is gaining +.6% to 126.68 bps. Lumber is just slightly higher since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is flat at 1.99% today, which remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +572.0% ytd to the highest level since March of last year and are very close to their April 2010 record. As expected, Greece succumbed to Troika demands, however I still view it as highly unlikely they will meet those demands over the intermediate-term. I still see little evidence to suggest that Europe's debt crisis won't flare up again in an even more intense fashion down the road. Volume is poor again today. Stocks weakened a bit after this morning's open, however the usual morning dip buyers quickly emerged. Investor sentiment remains too complacent, however performance angst is likely already a factor in some circles, which is a positive. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. One of my longs, (AAPL), is crossing the $500 market today. The stock is very extended technically and sentiment is frothy, but I still see further outperformance over the intermediate-term after a pause. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, less tech sector optimism, technical selling, profit-taking and more shorting.
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