BETWEEN THE HEDGES

Tuesday, February 21, 2012

Tuesday Watch

Posted by Gary .....at 12:26 AM

Weekend Headlines
Bloomberg:

Euro Ministers Reach Agreement on Second Greek Bailout. Euro-area finance ministers reached agreement on a second bailout package for Greece that is vital to staving off a default next month. The deal includes a 53.5 percent writedown for investors in Greek bonds, Luxembourg’s Jean-Claude Juncker, who led the meeting, told reporters early this morning. Debt-swap bonds will have a coupon of 2 percent in 2014, rising to 3 percent in 2015- 2020 and to 4.3 percent after that, he said. Finance ministers haggled into the night in Brussels over the terms of new loans to Greece and a possible contribution by central banks, and leaned on investors to accept bigger write- offs in a bond exchange. Ministers were discussing a Greek debt target of 121 percent of gross domestic product by 2020. European Central Bank President Mario Draghi called the deal “a very good agreement.” Italian Prime Minister Mario Monti said private bondholders agreed to take a bigger writeoff on their Greek debt after “intense” negotiations. The euro surged on news of a deal, rising as high as $1.3293 and trading up 0.1 percent at $1.3262 at 5:30 a.m. in Brussels. European governments need to weld together the program to give enough time for the bond exchange -- designed ultimately to write off about 100 billion euros of Greek debt -- to go ahead by a mid-March deadline. The target is for the swap offer to run from Feb. 22 to March 9, so the exchange takes place in time for Greece to escape the full 14.5 billion-euro cost of a March 20 bond redemption, German lawmakers were told last week by government officials.
Merkel as Debt Crisis Iron Lady Bucks German Street on Greek Aid. Angela Merkel is having a Margaret Thatcher moment. Having spent six years in office defying comparison with Britain’s first woman prime minister, Merkel is being likened to Thatcher as she steers Europe’s response to the financial crisis with demands for debt reduction and tighter economic controls. Media including the Frankfurter Allgemeine Zeitung, the newspaper of record in Germany’s financial hub, dub her “Europe’s Iron Lady.” Strengthened by record-low joblessness at home, Merkel has rejected calls to either cut Greece loose from the euro area or ease her conditions for aid. By bucking the German street and steering the middle course, she is gambling that policy makers will continue to prevent a euro meltdown, helping her win re- election next year and match Thatcher’s third term. “If Merkel were to go into elections with a collapsed euro zone she’d have a lot of difficulty winning,” Giles Merritt, head of Friends of Europe, a Brussels-based research group that promotes debate on the European Union, said in an interview. “Finally her statesman side is kicking in.”
Spain Sinks Deeper Into Periphery on Debt Rise. Spain’s debt load is set to double from where it was when Europe’s sovereign debt crisis began, eroding the economic advantages that distinguished it from the region’s periphery and helped shield it from Greek (1004Z) contagion. Finance chiefs meet in Brussels today in the latest effort to save Greece from default. Spain went into the crisis with public debt of 40 percent of its gross domestic product, compared with an average ratio of 70 percent in the euro region. The European Union forecasts its debt will have almost doubled by next year, as Moody’s Investors Service says Spain is losing one of its “key relative credit strengths.” Investors give Spain a discount of just 30 basis points on borrowing for a decade compared with what they charge Italy, down from 200 basis points at the end of last year. Spain’s 10- year yield is 5.18 percent, up 33 basis points since Feb. 1. “Time is working against Spain and that is why deficits have to be brought down sharply before the critical 100 percent debt-to-GDP mark is breached,” said Georg Grodzki, who helps oversee $515 billion as global head of credit research at Legal & General Investment Management in London.
China January Home Prices Worst in a Year. China’s January home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains as Premier Wen Jiabao reiterated his determination to maintain property curbs. Prices in 47 of the cities fell, while home values in the remaining 23 were unchanged from December, the National Statistics Bureau said in a statement on its website on Feb. 18. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a fourth month. None of the cities posted gains in home prices for the first time since the government began releasing at the start of 2011 prices for 70 cities surveyed instead of a national average. China won’t waver on the real-estate controls and efforts to bring prices down to a reasonable level to ensure fairness and stability, Wen said on Feb. 12. “The data wasn’t a surprise as the government maintained its property policies, and home prices will continue to fall till at least the later half of the year,” said Ting Lu, a Hong Kong-based economist at Bank of America Corp. unit Merrill Lynch.
Apple(AAPL) Partner Foxconn Has 'Tons of Issues,' Labor Group Says. The Fair Labor Association, a watchdog monitoring working conditions at makers of Apple Inc. products, has uncovered “tons of issues” that need to be addressed at a Foxconn Technology Group plant in Shenzhen, China, FLA Chief Executive Officer Auret van Heerden said. Van Heerden made the comments in a telephone interview after a multiday inspection of the factory. Apple, the first technology company to join the FLA, said on Feb. 13 that it asked the Washington-based nonprofit organization to inspect plants owned by three of its largest manufacturing partners. “We’re finding tons of issues,” van Heerden said en route to a meeting where FLA inspectors were scheduled to present preliminary findings to Foxconn management. “I believe we’re going to see some very significant announcements in the near future.”
Speculators Boost Bullish Wagers to Highest Since September: Commodities. Hedge funds increased commodity bets to the highest in almost five months on signs that a rescue plan for Greece and faster U.S. growth will buoy demand as supplies shrink for everything from soybeans to copper. Money managers boosted net-long position across 18 U.S. futures and options by 2.9 percent to 956,313 contracts in the week ended Feb. 14, the most since Sept. 20, government data show. Soybean wagers jumped 29 percent to a five-month high. Silver holdings rose for a seventh straight week, the longest advance in almost three years.
Democrat Conrad Says Economic Crisis Would Be Prod to Lawmakers on Debt. An economic catastrophe like the debt crisis in Europe or a Middle East conflict may be the only way to get congressional action this year on a broad reduction of the U.S. deficit, Senate Budget Committee Chairman Kent Conrad said. “If Europe tanks and begins to drag us down, it may become an acute situation that requires a response,” Conrad said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “Second possibility is Israel attacking Iran. That could create a big run-up in oil prices. That could have dramatic economic effects and also require a fuller long-term response by the United States.” The North Dakota Democrat, who has been in the Senate since 1987, said he blames lawmakers in both political parties -- and the voters who elected them -- for intransigence on tax increases, entitlement cuts and other tough choices that last year quashed an effort to craft a 10-year debt-cutting plan.
Egypt to Put 19 U.S. Citizens on Trial on Feb. 26, MENA Reports. Egypt will start the trial of 43 people, including 19 U.S. citizens, on Feb. 26 for breaking rules on foreign financing of NGOs, the official Middle East News Agency reported, citing a court announcement in Cairo.
Death Toll Mounts in Syria, Officials Killed. Opponents of Syrian President Bashar al-Assad’s rule stepped up their deadly attacks against government officials as the violence of the past 11 months pushes the country toward civil war. Gunmen killed Syrian Public Prosecutor Nidal Ghazal, Judge Mohammed Ziyadeh and their driver in Idlib, the official Syrian Arab News Agency said. The international community is divided on how to resolve the conflict as the daily death toll mounts. Forces loyal to the president are using tanks and artillery to try to crush a rebellion aimed at toppling Assad’s regime. Syrian government forces killed 27 people across the country yesterday, Al Jazeera reported, citing activists. “I’m worried that Syria is going to slide into a civil war,” U.K. Foreign Secretary William Hague told the BBC’s Andrew Marr show yesterday.
Iran Stops Oil Shipments to U.K., French Buyers, Ministry Says. Iran halted crude exports to French and British companies, the oil ministry’s news website Shana reported, citing Alireza Nikzad Rahbar, a ministry spokesman. Iran “will give its crude oil to new customers instead of French and U.K. companies,” Rahbar said. The halt followed a warning by the oil minister that the Persian Gulf country might act preemptively ahead of a European Union ban on purchases of Iranian crude planned to start in July, he said without giving further details, according to the report yesterday.
Japan Trade Deficit Widens to Record as Exports Slump: Economy. Japan posted a record trade deficit in January as the yen’s strength and weaker global demand eroded manufacturers’ profits and slowed the nation’s recovery from last year’s earthquake and tsunami. The gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier as energy imports surged, a Ministry of Finance reported in Tokyo today. Shipments to China, Japan’s largest market, fell 20 percent from a year earlier, the biggest decline since Aug. 2009. Exports to European Union slid 7.7 percent and shipments to the U.S. advanced 0.6 percent.
Oil Profits Falling Fastest Since Lehman From Exxon(XOM) to Chesapeake(CHK): Energy. Profits for the biggest U.S. energy producers including Exxon Mobil Corp. (XOM) are poised to decline the most since the financial meltdown of 2008-09 as the drilling technique known as fracking collapses natural gas prices. Exxon and Chesapeake Energy Corp. (CHK), which today reports 2011 earnings, will see net income in 2012 slide 7 percent and 10 percent, respectively, according to the mean of analyst estimates compiled by Bloomberg. That would be the biggest drop since 2009 for the companies, the largest U.S. gas producers. While higher global demand for transportation fuels drove up crude prices about 30 percent since 2009, the domestic gas glut is pinching earnings for producers even as it pushes the U.S. toward energy independence. Especially hurt are Chesapeake and ConocoPhillips, which amassed gas assets before the full impact of fracking on supply growth was apparent, said Michael McMahon, a managing director for energy investments at Pine Brook Partners LLC, a private equity firm in New York. “Fracking has opened up vast areas of development on a scale that’s practically overwhelming for the industry,” said William Dutcher, president of Dutcher and Co., an Oklahoma City- based operator of 1,300 oil and gas wells. Oil output from U.S. fields including in shale rock is at a nine-year high and gas production hasn’t been this robust in almost four decades, Energy Department figures show. “Shale has driven the gas price down to where it’s creating economic hardship for producers, especially those that made acquisitions in 2006 and 2007, when gas was so expensive,” Dutcher said.
Rio(RIO) Sees 'Volatile' First-Half Ore Prices on China. Rio Tinto Group (RIO), the second-biggest iron ore exporter, expects prices to remain volatile in the first half as demand slows from Chinese steel mills and the European debt crisis crimps the outlook for global growth. “We believe we’ll go through a period of uncertainty probably in the first six months of the year with volatility, then we see some smoother sailing,” Sam Walsh, the company’s iron ore and Australia chief executive officer, told reporters in Perth. “Trying to resolve the issues in Greece and elsewhere creates an amount of uncertainty. People are holding back waiting for things to be resolved, waiting for the comfort that they can see where the economy will be going.”
Boomers' Drug Use Pushes Hepatitis Deaths Past HIV, Study Finds. Deaths attributed to hepatitis in the U.S. rose during the past decade to surpass those from HIV, posing a future public health burden as most people aren't aware they are infected. The baby boom generation, those born from 1946 to 1964, are the most at risk to the bloodborne virus, said John Ward, director of the Centers for Disease Control and Prevention's hepatitis division, and an author of the study. “Injection drug use was frequent in this age group, and even one-time exposure to injection drug use carries a high risk,” Ward said in an interview. “Seventy-five percent of the mortality is in this age group, and that mortality is increasing. That's the sobering facts for the baby boom generation.”

Wall Street Journal:

Fed Writes Sweeping Rules From Behind Closed Doors. The Federal Reserve has operated almost entirely behind closed doors as it rewrites the rule book governing the U.S. financial system, a stark contrast with its push for transparency in its interest-rate policies and emergency-lending programs. While many Americans may not realize it, the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations, and scores more are coming. In the process it is reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions.
UBS Launches New E-Trading Platform For Credit-Default Swaps. STAMFORD, Conn. (Dow Jones)--Seeing that a pending regulatory overhaul of the $708 trillion private derivatives market will bring down the curtain on the lucrative business of dealing in swaps, UBS (UBS, UBSN.VX) is looking for a new way to stay in the game. In a wholesale shift in how credit derivatives have been traded, the Swiss banking giant has launched an electronic market for credit-default swaps, allowing customers to buy or sell the insurance-like instruments directly with other customers on-screen.
Ex-Bond Highflier Is Warned by SEC. U.S. securities regulators have warned a former top architect of the structured-finance boom that they are considering civil charges alleging he misled investors in a mortgage-bond deal that imploded, people familiar with the situation said. Alexander Rekeda, who led Japanese bank Mizuho Financial Group Inc.'s charge into the then-red-hot business of U.S. subprime debt in 2006, was warned by the Securities and Exchange Commission in October that he faces the potential charges, according to a regulatory filing.
Fed Raises Bar For Bank Deals. U.S. regulators eventually gave the green light to the $9 billion merger of Capital One Financial Corp. and ING Direct in a key test of the financial rules-of-the-road since the Dodd-Frank Act. But the Federal Reserve Board may be less accommodating to more-complex medium and large banks, analysts and experts said.
Concerned Scientists Reply on Global Warming. The authors of the Jan. 27 Wall Street Journal op-ed, 'No Need to Panic about Global Warming,' respond to their critics.

Marketwatch.com:

Many U.K. Directors See Big Risk Of Euro-Zone End.

Business Insider:

Zero Hedge:

CNBC:

Saudi Arabia Cuts Oil Output, Export: Industry Report. The world’s top oil exporter, Saudi Arabia, appears to have cut both its oil production and export in December, according to the latest update by the Joint Organizations Data Initiative (JODI), an official source of oil production, consumption and export data.
Bullish Hedge Funds Hike Their Bets in 2012 Rally. Hedge funds are cranking up their bets in equities and credit in 2012's buoyant markets in the belief that the euro zone, U.S. and Chinese economies will fare better than many were fearing last year.
Recession Looms as Growth Slows in Developed Countries. Economic growth in developed economies almost ground to a halt in the last three months of 2011, with the U.S. driving what growth there was, according to the Organisation for Economic Co-operation and Development (OECD).
China Telecom in Deal to Sell iPhone in the Mainland.

Wall Street All-Stars:

S&P 500 Corporate Earnings Update.

NY Times:

For Women Under 30, Most Births Occur Outside Marriage. It used to be called illegitimacy. Now it is the new normal. After steadily rising for five decades, the share of children born to unmarried women has crossed a threshold: more than half of births to American women under 30 occur outside marriage. Once largely limited to poor women and minorities, motherhood without marriage has settled deeply into middle America. The fastest growth in the last two decades has occurred among white women in their 20s who have some college education but no four-year degree, according to Child Trends, a Washington research group that analyzed government data. Among mothers of all ages, a majority — 59 percent in 2009 — are married when they have children. But the surge of births outside marriage among younger women — nearly two-thirds of children in the United States are born to mothers under 30 — is both a symbol of the transforming family and a hint of coming generational change. One group still largely resists the trend: college graduates, who overwhelmingly marry before having children. That is turning family structure into a new class divide, with the economic and social rewards of marriage increasingly reserved for people with the most education.
Bonds Backed by Mortgages Regain Allure. Some Wall Street investors made money as the mortgage market boomed; others profited when it fell apart. Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing: buying the same securities built from mortgages that he bet against before the financial crisis erupted. Mr. Lippmann is joined by other big-money investors — mutual funds like Fidelity as well as hedge funds — in riding a wave of interest in the same complex loan pools that nearly washed away the financial system.

Chicago Tribune:

Chicago New Condo Sales Plunge More Than 50% in 2011.
Falcone Sticks With Plan, Hit by Lawsuit. Hedge fund manager Philip Falcone told investors he is sticking by plans to build a national mobile broadband service even as an investor charged in a lawsuit that he deceptively raised billions of dollars that went to the struggling venture.

Reuters:

Exclusive: SEC Widens Probe of ETFs. U.S. securities regulators have widened their inquiry into the trillion-dollar market for exchange-traded funds, according to a person familiar with the matter. Prompted by a delay in a big trade at a popular ETF, the U.S. Securities and Exchange Commission is taking a closer look at a possible connection between high-frequency traders and hedge funds jumping in and out of ETFs, and instances where ETF trades fail to settle on time, this person said. The SEC's inquiry is part of a wider probe that began last year and focused on complex ETFs that allow investors to magnify returns or bet against stock indexes.

Financial Times:

Impact of Insider Crackdown Spreads. As regulators crack down on inside information, particularly in the US, asset managers say increased scrutiny and prosecutions have made it more difficult to talk to companies and affected equity returns.
Hedge Funds 'Have to Try Harder'. Hedge funds are on their final warning with investors, according to research from SEI. Although institutional investors have not yet wavered in their commitment to hedge funds, despite disappointing performance in recent years, they are now likely to be more demanding, both in terms of performance and of transparency.
Investors Seek Hedge Against Euro Split. Leading investment banks are considering creating currency products that would protect companies and investors in the event of a partial break-up of the euro. Banks report that some clients have asked them to provide a hedging tool that would protect their exposure in countries that reintroduced their national currency. “There’s a lot of interest in this,” said Bernie Sinniah, global head of corporate sales at Citigroup, one of the largest foreign exchange dealers.
European Union rules set to be approved by ministers tomorrow would force euro-area countries to seek EU approval of their yearly tax and spending budgets before presenting them to their national parliaments for approval, citing a draft of the regulations.
US Corporates Shy To Offer Guidance. US companies are more uncertain about the future than at any point since the financial crisis, with just one in five of the country’s biggest corporations making any predictions as they published fourth-quarter results. “We’re seeing a marked reluctance from companies to be concrete in their forecasts,” said Christine Short at data provider Standard & Poor’s Capital IQ.

The Telegraph:

Iran Risks Nuclear Cold War. Iran's pursuit of weapons of mass destruction is threatening to trigger a “new Cold War” that poses an even greater threat of nuclear conflict than the stand-off between the USSR and the West, William Hague warns.
Debt Crisis: Live.

BBC:

Iran 'May Boost Nuclear Program', Diplomat Warns. Iran may be poised to expand its nuclear programme at an underground site near the city of Qom, a Vienna-based diplomat has told the BBC. It appears to be ready to install thousands of new-generation centrifuges at the fortified underground plant, the diplomat said. They could speed up the production of enriched uranium - required for both power generation and nuclear weapons.

Welt am Sonntag:

The German Economy Minister said Greek reforms are "insufficient," citing an internal working paper from the ministry. "The implementation from the Greek side remains insufficient," citing the document.

El Pais:

Around one million people marched in Spain's capital and other main cities to protest against Prime Minister Mariano Rajoy's labor rules overhaul, citing the countries' two main unions, CCOO and UGT. "Spain needs to avoid being the European country that most destroys jobs," Rajoy said early today during a televised speech at a People's Party convention in Sevilla.

Securities Times:

Outstanding non-performing loans at publicly traded banks in China may increase 26% this year from a year earlier, citing a China International Capital Corp. report. Non-performing loans may keep rising, according to the report.

Study Times:

China plans to push forward property tax reform trials this year, citing finance minister Xie Xuren. The country also plans to prevent redundant construction and limit new projects, Xie said. China will limit local governments' new debts, citing Xie.

Weekend Recommendations
Barron's:

Made positive comments on (CIT) and (GLW).
Made negative comments on (HPQ).

Night Trading

Asian indices are -.50% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 158.50 unch.
Asia Pacific Sovereign CDS Index 133.50 -1.5 basis points.
FTSE-100 futures unch.
S&P 500 futures +.40%.
NASDAQ 100 futures +.25%.

Morning Preview Links

Earnings of Note
Company/Estimate

(DTG)/.74
(MYL)/.50
(MHS)/1.17
(GPC)/.83
(HD)/.42
(WMT)/1.45
(BYD)/-.01
(CBRL)/1.14
(MDT)/.84
(SKS)/.14
(M)/1.65
(BKS)/.92
(INTU)/.45
(FST)/.26
(CAKE)/.52
(CHK)/.59
(CUZ)/.12
(DELL)/.51
(KFT)/.57
(EXPD)/.47

Economic Releases
8:30 am EST

The Chicago Fed Nat Activity Index for January is estimated to rise to .22 versus .17 in December.

Upcoming Splits

None of note

Other Potential Market Mover7s

The 2Y T-Note Auction, Ecofin Meeting of EU Finance Ministers, (MYL) Investor Day and the Enercom Oil/Gas Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Monday, February 20, 2012

Weekly Outlook

Posted by Gary .....at 8:03 PM

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Tuesday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as profit-taking, global growth fears and rising energy prices offsets better US economic data, less Eurozone debt angst and short-covering. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Friday, February 17, 2012

Market Week in Review

Posted by Gary .....at 7:58 PM

S&P 500 1,361.23 +1.39%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 7:54 PM

Indices

S&P 500 1,361.23 +1.39%
DJIA 12,949.80 +1.16%
NASDAQ 2,951.78 +1.65%
Russell 2000 828.68 +1.89%
Wilshire 5000 14,208.23 +1.48%
Russell 1000 Growth 638.82 +1.31%
Russell 1000 Value 674.45 +1.58%
Morgan Stanley Consumer 790.86 +1.56%
Morgan Stanley Cyclical 1,014.62 +1.16%
Morgan Stanley Technology 687.18 +1.86%
Transports 5,239.52 -.28%
Utilities 452.60 +.48%
MSCI Emerging Markets 43.79 +2.02%
Lyxor L/S Equity Long Bias Index 1,019.31 +.43%
Lyxor L/S Equity Variable Bias Index 827.52 +.21%
Lyxor L/S Equity Short Bias Index 548.23 -.59%

Sentiment/Internals

NYSE Cumulative A/D Line 143,835 +1.62%
Bloomberg New Highs-Lows Index 201 -97
Bloomberg Crude Oil % Bulls 41.0 -22.6%
CFTC Oil Net Speculative Position 204,752 +21.24%
CFTC Oil Total Open Interest 1,486,350 +.12%
Total Put/Call .75 -30.56%
OEX Put/Call 1.0 -67.21%
ISE Sentiment 140.0 +129.51%
NYSE Arms 1.07 -16.41%
Volatility(VIX) 17.78 -14.48%
S&P 500 Implied Correlation 71.35 -2.46%
G7 Currency Volatility (VXY) 10.37 +2.27%
Smart Money Flow Index 10,510.16 +.92%
Money Mkt Mutual Fund Assets $2.659 Trillion +.1%
AAII % Bulls 42.71 -17.29%
AAII % Bears 26.63 +31.90%

Futures Spot Prices

CRB Index 317.39 +1.68%
Crude Oil 103.24 +4.23%
Reformulated Gasoline 301.56 +1.02%
Natural Gas 2.68 +8.36%
Heating Oil 318.89 -.05%
Gold 1,725.90 +.05%
Bloomberg Base Metals Index 221.40 -3.97%
Copper 371.60 -3.92%
US No. 1 Heavy Melt Scrap Steel 401.67 USD/Ton unch.
China Iron Ore Spot 134.30 USD/Ton -5.89%
Lumber 275.0 -.43%
UBS-Bloomberg Agriculture 1,519.47 +1.04%

Economy

ECRI Weekly Leading Economic Index Growth Rate -3.70% +50 basis points
Philly Fed ADS Real-Time Business Conditions Index .1516 -1.56%
S&P 500 Blended Forward 12 Months Mean EPS Estimate 107.11 +.08%
Citi US Economic Surprise Index 64.90 -8.4 points
Fed Fund Futures imply 46.0% chance of no change, 54.0% chance of 25 basis point cut on 3/13
US Dollar Index 79.33 +.41%
Yield Curve 171.0 unch.
10-Year US Treasury Yield 2.0% +1 basis point
Federal Reserve's Balance Sheet $2.920 Trillion +.34%
U.S. Sovereign Debt Credit Default Swap 38.0 -2.71%
Illinois Municipal Debt Credit Default Swap 236.0 +1.22%
Western Europe Sovereign Debt Credit Default Swap Index 342.38 +3.03%
Emerging Markets Sovereign Debt CDS Index 267.33 +9.68%
Saudi Sovereign Debt Credit Default Swap 137.83 +5.29%
Iraqi 2028 Government Bonds 77.54 -.52%
China Blended Corporate Spread Index 655.0 +4 basis points
10-Year TIPS Spread 2.26% +4 basis points
TED Spread 41.75 -.25 basis point
3-Month Euribor/OIS Spread 68.50 -3.5 basis points
3-Month EUR/USD Cross-Currency Basis Swap -70.25 +2.5 basis points
N. America Investment Grade Credit Default Swap Index 98.72 +.65%
Euro Financial Sector Credit Default Swap Index 184.99 +2.45%
Emerging Markets Credit Default Swap Index 256.43 -3.28%
CMBS Super Senior AAA 10-Year Treasury Spread 190.0 +1 basis point
M1 Money Supply $2.226 Trillion -.01%
Commercial Paper Outstanding 962.10 -1.10%
4-Week Moving Average of Jobless Claims 365,300 -.50%
Continuing Claims Unemployment Rate 2.7% -10 basis points
Average 30-Year Mortgage Rate 3.87% unch.
Weekly Mortgage Applications 801.80 -1.01%
Bloomberg Consumer Comfort -39.8 +1.9 points
Weekly Retail Sales +2.60% +10 basis points
Nationwide Gas $3.53/gallon +.03/gallon
U.S. Heating Demand Next 7 Days 16.0% below normal
Baltic Dry Index 717.0 +.28%
Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 unch.
Rail Freight Carloads 227,207 -2.31%

Best Performing Style

Small-Cap Value +1.93%

Worst Performing Style

Large-Cap Growth +1.31%

Leading Sectors

HMOs +5.47%
Oil Tankers +5.37%
Networking +4.37%
Tobacco +4.17%
Telecom +3.17%

Lagging Sectors

Coal -.61%
Gold & Silver -.97%
Education -1.31%
Road & Rail -1.44%
Steel -3.34%

Weekly High-Volume Stock Gainers (28)

CIE, AEA, PCYC, TNGO, LNKD, SYNT, LPSN, FOSL, ASGN, NSIT, CAB, ITRI, MPWR, DF, MDAS, ASEI, CHE, BRKS, GEVA, DBD, AVP, LHCG, RPXC, CSOD, LGND, TAL, RGC and AKRX

Weekly High-Volume Stock Losers (22)

GEOY, AIMC, CPLA, RAIL, QSFT, LBY, AAWW, HK, SJM, ZIP, RP, TOBC, GNRC, OC, VVUS, USTR, NILE, GTI, ACOM, TRLG, DGIT and PMFG

Weekly Charts
ETFs

Stocks

*5-Day Change

Stocks Rising Slightly into Final Hour on Less Eurozone Debt Angst, Financial Sector Optimism, US Economic Data, Short-Covering

Posted by Gary .....at 4:14 PM

Broad Market Tone:

Advance/Decline Line: Slightly Lower
Sector Performance: Mixed
Volume: Slightly Below Average
Market Leading Stocks: Underperforming

Equity Investor Angst:

VIX 17.92 -6.76%
ISE Sentiment Index 146.0 +43.14%
Total Put/Call .76 -10.59%
NYSE Arms 1.0 +98.03%

Credit Investor Angst:

North American Investment Grade CDS Index 98.72 -1.42%
European Financial Sector CDS Index 185.03 -3.35%
Western Europe Sovereign Debt CDS Index 342.34 -1.52%
Emerging Market CDS Index 256.50 -1.01%
2-Year Swap Spread 30.50 +1.25 bps
TED Spread 41.75 +2.25 bps
3-Month EUR/USD Cross-Currency Basis Swap -70.25 +1.75 bps

Economic Gauges:

3-Month T-Bill Yield .08% -1 bp
Yield Curve 172.0 +2 bps
China Import Iron Ore Spot $134.40/Metric Tonne -1.83%
Citi US Economic Surprise Index 64.90 -.6 point
10-Year TIPS Spread 2.26 +1 bp

Overseas Futures:

Nikkei Futures: Indicating +88 open in Japan
DAX Futures: Indicating +12 open in Germany

Portfolio:

Slightly Lower: On losses in my Biotech and Tech sector longs
Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added some back
Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs on less Eurozone debt angst, better US economic data, short-covering, more financial sector optimism and investor performance angst. On the positive side, Oil Service, Alt Energy, Telecom, Retail and Education shares are especially strong, rising more than +1.0%. Financial shares have traded well throughout the day. Gold is falling -.32% and Lumber is rising +1.4%. The 10Y Yield is rising +2 bps to 2.0%. The France sovereign cds is falling -3.6% to 187.0 bps, the Spain sovereign cds is falling -3.15% to 388.33 bps, the Japan sovereign cds is falling -5.22% to 124.77 bps and the Brazil sovereign cds is down -3.7% to 136.50 bps. On the negative side, Coal, Steel, Semi, Biotech and Hospital shares are under pressure, falling more than -1.0%. Tech shares are underperforming today and the Transports continue to trade relatively poorly. The UBS-Bloomberg Ag Spot Index rising +.35%, Oil is gaining +1.0% and Copper is falling -1.92%. Copper looks like it is rolling over technically at its 200-day. Lumber is -4.5% 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 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. Overall, credit gauges have deteriorated over the last week and remain at stressed levels. China Iron Ore Spot has plunged -25.8% since Sept. 7th of last year. Shanghai Copper Inventories are up +716.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Investors continue to price in a Eurozone debt crisis "can kicking" and stabilizing economic growth in the region. The odds of a disappointment here are increasing. As well, oil is very close to a technical breakout, with copper rolling over, which would also be an equity headwind. 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. I expect US stocks to trade mixed-to-higher into the close from current levels on less Eurozone debt angst, better US economic data, short-covering, more financial sector optimism, technical buying and investor performance angst.

Today's Headlines

Posted by Gary .....at 3:00 PM

Bloomberg:

ECB Greek Plan May Hurt Bondholders While Triggering Debt Swaps. The European Central Bank’s plan to shield its Greek bond holdings from a restructuring may hurt private investors while paving the way for debt insurance contracts to be triggered. The ECB will exchange its Greek debt for new bonds with an identical structure and nominal value, though they’ll be exempt from so-called collective action clauses the government is reportedly planning. That implies senior status for the ECB over other investors, according to UBS AG, and the use of CACs may lead to credit-default swaps protecting $3.2 billion of Greek bonds being tripped. “It may appear that the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private-sector bondholders,” according to Chris Walker, a foreign exchange strategist at UBS, the world’s third-biggest currency trader. “If a coercive default does indeed eventually take place then a CDS event seems very likely with all the negative consequences for risk appetite that may bring.” Government officials are separately negotiating a writedown of the nation’s debts with private investors before a 14.5 billion-euro ($19 billion) note comes due on March 20 that risks sending Greece into default. The yield on the nation’s benchmark 10-year bond jumped 28 basis points today to 33.67 percent as of 1:30 p.m. in London, its sixth straight day of increases.
Greek Bailout Deal Nearer After Germany Signals Backing at Feb. 20 Meeting. Euro-area governments closed in on a deal to unlock a 130 billion-euro ($171 billion) aid package for Greece, seeking to avert the region’s first sovereign default. Germany, the biggest country contributor to euro-area rescues, signaled that finance ministers may be ready to back Greece’s second bailout in two years when they meet Feb. 20 in Brussels. After a week of wrangling among euro-area officials, Chancellor Angela Merkel’s government indicated it aims to avoid splitting the timetable of the aid and a writedown of Greek debt to private bondholders and agree to the deal as one package. Greece’s struggle to give assurances on debt-reduction goals through the end of the decade have heightened uncertainty as the clock ticks toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history. The Brussels gathering on Feb. 20 is due to start at 3:30 p.m. instead of the usual 5 p.m.
Merkel Government Allies May Block Greece Package, Spiegel Says. Chancellor Angela Merkel’s Christian Social Union ally may block a second aid package for Greece in Germany’s lower house of parliament on Feb. 27 should Greece fail to honor its debt reduction commitments, party chairman Horst Seehofer told Spiegel magazine. The CSU, the sister party of Merkel’s Christian Democratic Union, won’t support measures that threaten Germany’s top credit rating, Seehofer also said. Any aid disbursement to Greece must be accompanied by “concrete reform steps” on the part of the Greek government, Seehofer told the magazine.
Stress Stops Easing With Greek Debt Faltering: Credit Markets. Measures of stress in global credit markets have stopped easing as a rescue plan for Greece threatens to unravel and some of the largest U.S. and European banks face potential ratings cuts. Interest-rate swap spreads, which gauge fear in debt markets, and benchmark measures of corporate credit risk in the U.S. and Europe touched the highest level in more than two weeks yesterday. Sales of bonds in dollars are poised for the slowest week this year. Relative yields on bank bonds worldwide climbed for a second day after an eight-week decline.
Record $6 Trillion of Fake U.S. Bonds Seized. Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt. The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said. The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. “Thanks to Italian authorities for the seizure of fictitious bonds for $6 trillion,” the embassy said in a message on Twitter. The financial fraud uncovered by the Italian prosecutors in Potenza includes two checks issued through HSBC Holdings Plc (HSBA) in London for 205,000 pounds ($325,000), checks that weren’t backed by available funds, the prosecutors said. As part of the probe, fake bonds for $2 billion were also seized in Rome. The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police. The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement. HSBC spokesman Patrick Humphris in London declined to comment when contacted by telephone.
Chinese Banks' Bad Loans Rise in Fourth Quarter as Economy Slows. Chinese commercial banks’ bad loans increased in the fourth quarter of last year, highlighting pressures the lenders face in maintaining asset quality as the economy slows. Non-performing loans rose 20.1 billion yuan ($3.2 billion) to 427.9 billion yuan as of Dec. 31, the China Banking Regulatory Commission said in a report on its website today. Bad loans accounted for 0.96 percent of total lending, up from 0.95 percent in September and 0.17 percentage point lower than a year earlier. Chinese banks are struggling to keep bad loans in check as the country’s economic expansion slows and the housing market cools under government curbs. Lenders’ non-performing loan ratio had not increased quarter-on-quarter since the end of 2005, according to data compiled by Bloomberg. “This is somewhat negative news because investors are not yet expecting an industry-wide rebound” in soured loans, May Yan, a Hong Kong-based analyst at Barclays Capital Inc., said by phone. “Banks this year face pressures from bad loans, particularly from developers and small businesses.”
Leading Economic Indicators Rise .4%. The index of U.S. leading indicators rose in January and the cost of living climbed less than forecast, pointing to sustained economic growth with limited price pressures. The 0.4 percent increase in the Conference Board’s gauge of the outlook for the next three to six months followed a 0.5 percent rise in December, the strongest back-to-back gains in almost a year.
Consumer Prices in U.S. Climbed Less Than Economists Forecast in January. The cost of living in the U.S. rose less than forecast in January, supporting the Federal Reserve’s view that inflation will be contained. The consumer-price index increased 0.2 percent after no change the prior month, the Labor Department reported today in Washington. Economists surveyed by Bloomberg had forecast a 0.3 percent gain. Over the past 12 months, prices climbed 2.9 percent, the smallest year-to-year advance since March 2011.
Oil Set For Biggest 2012 Weekly Gain. West Texas Intermediate crude rose as much as 1.2 percent today and is up 4.3 percent this week. Oil for March delivery rose 63 cents, or 0.6 percent, to $102.94 a barrel at 12:17 p.m. on the New York Mercantile Exchange. The contract reached $103.57, the highest level since Jan. 5. Futures are headed for the biggest weekly gain since Dec. 23. Brent oil for April settlement dropped 94 cents, or 0.8 percent, to $119.17 a barrel on the London-based ICE Futures Europe exchange. The contract touched $120.70, the highest level since June 15.
Canada Housing Poised for 'Severe' Drop. (graph) Canada may be on the cusp of a “severe” housing correction as real estate investment surges above a tipping point relative to economic output, according to George Athanassakos, professor of finance at the Richard Ivey School of Business. The CHART OF THE DAY shows Canada’s housing investment as a percentage of gross domestic product, and the declines in inflation-adjusted house prices that follow when this ratio tops 7 percent.
Brazil Puts Reach Five-Year High: Options. Options traders are driving the cost of hedging against losses in an ETF tracking Brazilian stocks to a five-year high. The cost of contracts to protect against a 10% decline in the iShares MSCI Brazil Index Fund was 29.5% more than the price of calls, according to Bloomberg. The premium was 29.7% on Feb. 7, the most since February 2007.

Wall Street Journal:

INTERVIEW: Ifo's Sinn: In Greece's Interest To Leave Euro Zone. The head of a prominent German economics institute said it is in the interests of the Greeks themselves to leave the euro zone, because only then can the country regain competitiveness and prosperity.
IMF Said to Give Less for Greek Bailout. The International Monetary Fund is expected to contribute just €13 billion ($17.07 billion) to a second Greek aid package worth €130 billion, leaving euro-zone governments to provide a much bigger share of funds than they did in the euro zone's three earlier bailouts, people familiar with the situation said.

Fox News:

Exclusive: Feds Arrest Man Allegedly Heading to US Capitol For Suicide Mission After Sting Investigation. Authorities have arrested a man allegedly on his way to the U.S. Capitol for what he thought would be a suicide attack on one of the nation's most symbolic landmarks, Fox News has learned exclusively. The man, in his 30s and of Moroccan descent, was nabbed following a lengthy investigation by the FBI, initiated after he expressed interest in conducting an attack. It's unclear how the FBI learned of his aspirations.

CNBC.com:

Forget Europe, Oil a Bigger Threat to Asia's Growth: Economists. While investors fret over the debt crisis in Europe and discuss its possible impact on Asia’s growth, one economist tells CNBC that emerging markets face a greater risk from rising oil prices than from Greece’s rising woes.
MBIA Adds to Fraud Claims Against BofA's(BAC) Countrywide. MBIA claimed it has new evidence of “widespread mortgage-origination fraud” at Bank of America’s Countrywide unit, hoping to bolster its $1.4 billion lawsuit accusing that unit of fraudulently inducing it to insure risky mortgage-backed securities.

Business Insider:

Zero Hedge:

Washington Post:

Overreach: Obmacare Vs. The Constitution.