Wednesday, February 29, 2012

Wednesday Watch


Evening Headlin
es
Bloomb
erg:
  • Irish Open New Front in European Debt Crisis as Treaty Vote Plays on Euro. Ireland will hold a referendum on ratifying the European fiscal compact after government ministers sought to frame the campaign as a vote on the nation’s determination to keep the euro. Prime Minister Enda Kenny, speaking in the Dublin parliament, said the government will name a date for the ballot in the coming weeks. In contrast to two previous Irish referendums on European policies, a rejection wouldn’t sink the treaty, which requires support from just 12 of the 17 euro countries to take effect. The vote will give the Irish a chance to reaffirm the nation’s commitment to the euro, Kenny said yesterday. In December, Finance Minister Michael Noonan said a ballot on the treaty would effectively be a vote on Ireland’s membership of the currency, as the government sought to avoid a repeat of 2001 and 2008 rejections by voters of European treaties. “This referendum carries huge risks,” said Thomas Costerg, an economist at Standard Chartered Bank in London, said. “The euro area is already very busy with Greece. Opening another front in Ireland is not good in terms of timing. It may increase nervousness about the future of the euro area’s perimeter.”
  • Goldman(GS), Wells Fargo(WFC) May Face SEC Mortgage-Securities Claims. Goldman Sachs Group Inc. and Wells Fargo & Co. were warned by federal regulators that they may face civil claims tied to sales of mortgage-backed securities. Goldman Sachs received a so-called Wells notice Feb. 24 from the Securities and Exchange Commission relating to disclosures for a late-2006 offering of $1.3 billion in subprime residential mortgage-backed securities, the firm said today in an annual financial report. Wells Fargo said it also got an SEC notice as the government examines whether it properly described facts and risks in offering documents.
  • China's Stocks Snap Eight-Day Gain on Housing Policy Reversal; Vanke Falls. China’s stocks fell, dragging the benchmark index lower for the first time in nine days, on concern the government will retain measures to curb gains in housing prices this year. China Vanke Co. (000002) led a gauge of developers down the most in four weeks after the China Securities Journal said Shanghai scrapped a plan allowing some non-local residents to buy second homes. “The property policy reversal has damped investors’ expectations that an easing of policies would put the economy back on track,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “That will weigh on sentiment given we’ve had a good rally this year.”
  • Treasury Yield Descending Since January Seen Signaling Slowing U.S. Growth. The $10 trillion market for U.S. Treasuries is signaling that the economic recovery may be poised to weaken even as consumer confidence rises toward pre-recession levels. Yields (USGG10YR) on 10-year Treasury notes, the benchmark for everything from mortgage rates to corporate bonds, fell as low as 1.89 percent yesterday, down from this year’s high of 2.09 percent on Jan. 23, according to data compiled by Bloomberg. Bond investors are focused on Europe’s sovereign-debt crisis, oil prices that exceed $100 a barrel again and home prices that have dropped to the lowest level since 2003. “You have an economy that’s not yet firing on all cylinders,” Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of primary dealers that are required to bid at Treasury auctions, said yesterday in a telephone interview.
  • JPMorgan's(JPM) Dimon Assails Newspaper Pay Levels in Bank's Defense. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon assailed the pay practices of the newspaper industry today as he sought to deflect criticism of bank pay as viewed through the compensation ratio. “Obviously our business, in investment banking in particular, all of our businesses, we have high capital and high human capital,” Dimon said today at a presentation in New York, where the bank is based. “Newspapers -- I went and got this one day just for fun -- 42 percent payout ratio, which I just think is just damned outrageous.” Lawmakers and journalists have criticized bankers for the size of their salaries and bonuses and regulators have blamed compensation for fueling the financial crisis. Dimon, who runs the biggest and most profitable U.S. bank, previously cited the media industry during a January investor call in which he sought to show why using compensation payout ratios is wrongheaded. JPMorgan paid the 25,999 employees in the investment bank an average of $341,552 last year, or about 34 percent of the unit’s revenue, according to figures posted Jan. 13. “Worse than that, you don’t even make any money!” Dimon said, directing his comments to those in the media covering the company’s investor day and drawing laughter from his audience. “We pay 35 percent. We make a lot of money.” JPMorgan posted $19 billion in profit last year.
  • Sokol Gets $1 Million A Year In Retirement Pay, Berkshire(BRK/A) Says. David Sokol, the executive who left Warren Buffett’s Berkshire Hathaway Inc. amid accusations of violating insider-trading rules last year, is receiving $1 million annually from the company in retirement payments. Sokol, who stepped down from Berkshire’s MidAmerican Energy Holdings Co. in April, collected $750,000 last year tied to the supplemental executive retirement plan, or SERP, MidAmerican said yesterday in its annual statement. Sokol was the unit’s chairman. Sokol, 55, broke company regulations by trading in the stock of one of Buffett’s takeover targets, Omaha, Nebraska- based Berkshire said in April. Sokol bought shares of Lubrizol Corp. in January 2011, less than three months before Berkshire announced a $9 billion agreement to acquire the company.
Wall Street Journal:
  • Romney Wins in Michigan, Arizona. Mitt Romney won the Michigan and Arizona primaries Tuesday, giving his campaign a much-needed boost and disappointing supporters of Rick Santorum who had hoped their candidate could prevail in Mr. Romney's native state of Michigan.
  • Voters Cite Economy as Top Issue. For all the attention paid to social issues in the run-up to two state primaries Tuesday night, voters in Michigan and Arizona identified the economy as their overriding concern—a preference that turned out to benefit Republican presidential candidate Mitt Romney, who won both contests.
  • Wells Fargo(WFC) Will Refinance 20,000 Borrowers Thanks To Settlement. Wells Fargo, the biggest mortgage servicer in the country, says the settlement that mortgage servicers and federal and state regulators reached will cost the bank about $720 million in expected income from refinancings.
  • Greece Feels Collateral Damage From Bank. The European Central Bank said it would no longer accept Greece's bonds as collateral for loans after the country was downgraded to a default rating, but added that the move was a temporary one that could be reversed once the new bailout package goes into effect. Until then, the ECB said it would be up to national central banks to decide whether to accept the bonds as collateral for their own emergency lending facilities. Greek banks, which would collapse without the support, would still be able to access loans directly from the Greek central bank, albeit at higher interest rates.
  • Banks Rev Up Lending. The lending expansion—detailed in the industry's latest report card from a top regulator—is good news for the U.S. economy at a time when the unemployment rate is 8.3% and investors remain anxious about the prospect of an economic downturn or market shock spurred by Europe's debt crisis.
  • New York Fed Spends $207.5 Million To Buy Additional Office Space. The Federal Reserve Bank of New York said Tuesday it had decided to buy a building it has been leasing for additional office space.
  • Geithner and the 'Privilege' of Being American by Lawrence B. Lindsey. The Founders argued that life, liberty, and the pursuit of happiness were rights that preceded government—not things to be granted by it.
Business Insider:
  • Ray Dalio Is The NEW King Of Hedge Funds. Not only does Bridgewater Associates' Ray Dalio run the world's largest hedge fund, but he just took George Soros' title as the "world's most successful hedge fund manager," reports the Financial Times. The fund's rank jumped from the No. 6 spot to No. 1 according to LCH Investments. LCH ranks hedge funds based on their net gains since their founding.
Zero Hedge:
CNBC:
  • Next Big Financial Crisis Will Be Made in China. The next big global financial crisis will emanate from China. That is not a firm prediction. But few countries have avoided crises after financial liberalization and global integration. Think of the U.S. in the 1930s, Japan and Sweden in the early 1990s, Mexico and South Korea in the later 1990s and the U.S., UK and much of the eurozone now. Financial crises afflict every kind of country. As Carmen Reinhart of the Peterson Institute for International Economics and Kenneth Rogoff of Harvard have remarked, they are “an equal opportunity menace”. Would China be different?
  • Is Warren Buffett's Berkshire Hathaway(BRK/A) Losing Its Edge?
  • Could Take 5 Years to Get 6% Unemployment: Fed's Pianalto. The U.S. economic recovery is "frustratingly slow" and it could take four to five years to ratchet the unemployment rate down to about 6 percent, from more than 8 percent now, a top Federal Reserve official said on Tuesday. The recovery is held back by the housing market and Europe's debt crisis among other headwinds, but monetary policy is now appropriately positioned to eventually achieve this "maximum employment" level, said Cleveland Fed President Sandra Pianalto.

NY Times:

  • Europe Delays Debt Talks After Signs of Uncertain Support. Domestic politics in euro zone countries emerged again on Tuesday as a serious obstacle to resolving the European debt crisis, contributing to a decision by officials to postpone a crucial meeting they had planned for Friday. The setbacks illustrated again how hard it has been to reconcile impatient financial markets with democratic processes.
Forbes:
  • White House Quietly Increases Budget for Obamacare's Exchange Subsidies by $111 Billion. I’ve written extensively about how the most fiscally dangerous aspect of Obamacare is its creation of a new entitlement for subsidized private insurance, through the law’s state-based exchanges. If employers dump many of their workers onto the exchanges, as numerous independent analyses suggest is likely, taxpayers may need to spend as much as $200 billion a year extra on these exchange subsidies. It turns out that the Obama Administration agrees that initial spending estimates are too low. The White House’s fiscal year 2013 budget adds $111 billion in exchange spending between 2014 and 2021, with even more spending to come in future years.
CNN:
  • Small Firms Prep For Rise In Gas Prices. Businesses that rely on fuel to get their products directly to customers are bracing for a sharp rise in gas prices. "We're terrified," Fain-Rossen said. "We don't want to let anyone go, but we have a family to support. We're actually wondering if we should raise prices now in anticipation of prices going up so that we don't get hit later unexpectedly."
  • Feds Level Charges In Largest Medicare Fraud. Dr. Jacques Roy, a Dallas area physician, allegedly led a scheme that bilked Medicare for nearly $375 million over five years, in the largest healthcare fraud committed in the United States, federal authorities announced Tuesday. Roy, 54, his office manager, and five owners of home health agencies, were arrested and indicted on charges related to their alleged participation in the scheme that involved fraudulent claims for home health services.
Reuters:
  • Exclusive: Justice Department Conducting Criminal Libor Probe. The Justice Department is conducting a criminal probe into whether the world's biggest banks manipulated a global benchmark rate, according to a person familiar with the situation. While the Justice Department's inquiry into how the London interbank offered rate, or Libor, is set had been known, the criminal aspect of the probe was not. A criminal inquiry underscores the serious nature of a worldwide investigation that includes regulators and law-enforcement agencies in the United States, Japan, Canada and the UK.
  • China Higher Court Begins Hearing Apple(AAPL) iPad Appeal. A long-running legal fight between Apple Inc and a debt-laden Chinese firm over the iPad trademark moved to a higher court on Wednesday, in a potentially decisive hearing that will set a precedent for the rest of mainland China.
  • BOJ's Kamezaki: Europe Debt Woes Hold Lessons For Japan. Japan needs to learn from Europe and act steadily to restore its fiscal health to avoid a sudden spike in bond yields, a central bank policy maker said on Wednesday. "The lesson from Europe's debt problems is that once trust in a country's finances declines, government bonds may not be considered a safe asset," Bank of Japan board member Hidetoshi Kamezaki said in a speech to business leaders in Fukuoka, in southern Japan. "It would be inappropriate to assume that just because Japanese government bonds have been stably absorbed in the market, there is no need to worry about the future."
  • First Solar(FSLR) Hit by Steep Loss, Shares Slip. U.S. solar maker First Solar Inc (FSLR.O) posted a quarterly loss on Tuesday, hit by charges to cut production costs and replace faulty panels, and it trimmed its forecast for 2012 sales, sending its shares 8 percent lower.
Financial Times:
  • Insider Trading Probe Broadens to Pharma Stocks. The US investigation into insider dealing on Wall Street has broadened to include trading of biotechnology and pharmaceutical stocks, according to a person familiar with the matter. The Federal Bureau of Investigation and the US attorney’s office in Manhattan are honing in on trades by hedge funds in biotech and pharmaceutical stocks around important drug approval announcements and corporate takeovers, this person said.
Telegraph:
  • Irish EU Treaty Vote Threatens Chaos. Ireland has shocked Europe with plans for a referendum on the EU's fiscal treaty, a move that risks an unprecedented fragmentation of the eurozone and a major clash with Germany. Premier Enda Kenny said Dublin was acting on legal advice from Ireland's attorney-general that "on balance" the fiscal compact requires a vote under the country's constitution. "It gives the Irish people the opportunity to reaffirm Ireland's commitment to membership of the euro," he told ashen-faced members of the Dail. All three major parties back the treaty but analysts say there is a high risk of rejection by angry voters in the current fractious mood.
  • Ireland Is Getting A Choice - Which Is More Than Other Eurozone States. Democracy continues to interfere with the European Union's best laid plans.

Bild:
  • Josef Ackermann, chief executive officer of Deutsche Bank(DB), called for the additional transfer of national sovereign rights to the European level from EU member states, citing an interview. Ceding more power to Europe is a gain for member countries because without a more strongly integrated Europe, "there will be, even for Germany no successful future, not only economically, but politically and culturally as well," the CEO said. The EU needs to be empowered with automatic hard sanctions as well as strict supranational oversight, he said.
Economic Information Daily:
  • China's highway construction debt-asset ratio is more than 70%, higher than high speed rail construction's ratio of 58%, citing a report by Beijing Jiaotong University. The National Development and Reform Commission requested the report from the university. Funds for public road construction takes up a "relatively large" proportion of financing from local government financing vehicles and poses a "relatively large" risk to banks, the report cites Guo Wenlong, a NDRC researcher as saying. Fees from highways in China's central, western regions aren't enough to cover interest payments on loans used to fund the projects, the report cites Guo as saying.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 161.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 131.50 -2.5 basis points.
  • FTSE-100 futures +.34%.
  • S&P 500 futures +.12%.
  • NASDAQ 100 futures +.10%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (SPLS)/.41
  • (LIZ)/.13
  • (CRI)/.44
  • (JOY)/1.36
  • (COST)/.87
  • (ITT)/.35
  • (EIX)/.46
  • (MTZ)/.14
  • (FNSR)/.22
  • (PETM)/.90
  • (PEGA)/.05
  • (MDR)/.19
  • (BID)/1.25
  • (TIE)/.15
Economic Releases
8:30 am EST
  • 4Q GDP is estimated to rise +2.8% versus a prior estimate of a +2.8% gain.
  • 4Q Personal Consumption is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
  • 4Q GDP Price Index is estimated to rise +.4% versus a prior estimated of a +.4% gain.
  • 4Q Core PCE is estimated to rise +1.1% versus a prior estimate of a +1.1% gain.

9:45 am EST

  • Chicago Purchasing Manager for February is estimated to rise to 61.0 versus a reading of 60.2 in January.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,100,000 barrels versus a +1,633,000 barrel gain the prior week. Distillate supplies are estimated to fall by -750,000 barrels versus a -208,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -425,000 barrels versus a -649,000 barrel decline the prior week . Finally, Refinery Utilization is estimated to rise by +.5% versus a +1.5% gain the prior week.

2:00 pm EST

  • Fed's Beige Book

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Fed's Bernanke speaking, Fed's Plosser speaking, Fed's Fisher speaking, ECB's LTRO Program Results, NAPM-Milwaukee for February, weekly MBA mortgage applications report, China Manufacturing PMI, Lazard Medical Tech Conference, Robert Baird Business Solutions Conference, KeyBanc Consumer Conference, Keefe Bruyette & Woods Bank Conference, BofA Merrill Ag Conference, (FE) Analyst Meeting and the (CMS) Investor Meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted 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 day.

Tuesday, February 28, 2012

Stocks Rising into Final Hour on Lower Energy Prices, Tech Sector Optimism, Less Eurozone Debt Angst, Short-Covering


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 18.22 +.16%
  • ISE Sentiment Index 124.0 +2.48%
  • Total Put/Call .80 -10.11%
  • NYSE Arms .83 +2.88%
Credit Investor Angst:
  • North American Investment Grade CDS Index 93.96 -1.77%
  • European Financial Sector CDS Index 168.61 -5.48%
  • Western Europe Sovereign Debt CDS Index 345.56 -1.32%
  • Emerging Market CDS Index 249.96 -.94%
  • 2-Year Swap Spread 28.50 -2.0 bps
  • TED Spread 39.0 +.25 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -66.50 +1.5 bps
Economic Gauges:
  • 3-Month T-Bill Yield .10% unch.
  • Yield Curve 165.0 +2 bps
  • China Import Iron Ore Spot $143.0/Metric Tonne +1.78%
  • Citi US Economic Surprise Index 47.60 -.2 point
  • 10-Year TIPS Spread 2.27 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +73 open in Japan
  • DAX Futures: Indicating -11 open in Germany
Portfolio:
  • Higher: On gains in my Biotech, Retail and Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs despite Eurozone debt angst, high energy prices, global growth fears and recent equity gains. On the positive side, Steel, Internet, Semi, Retail and Airline shares are especially strong, rising more than +1.0%. Oil is falling -.87% and Copper is rising +.66%. Tech shares are outperforming. Asian shares were about +1.0% higher overnight, led by a +1.85%
gain in Hong Kong shares. The Germany sovereign cds is falling -2.3% to 80.17 bps, the France sovereign cds is down -3.0% to 178.67 bps and the Russia sovereign cds is down -2.9% to 188.0 bps. On the negative side, Oil Tanker, Networking, Construction, Homebuilding, REIT, Education and Road & Rail shares are under meaningful pressure, falling more than -.75%. The Transports are underperforming despite the pullback in oil today. The UBS-Bloomberg Ag Spot Index is rising +.83% and Gold is gaining +1.11%. Weekly retail sales rose +2.9% this week versus a +2.7% gain the prior week. This remains a subpar rate for a recovery. Lumber is -2.3% 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 at 1.94%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -6.04% over the last 5 days and continues to trend lower from its peak in mid-December. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +690.0% 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. US stocks remain extremely resilient to all negative news. However, the Transports remain a concern. Breadth is poor today and there are an unusual number of stocks falling meaningfully on volume for an up day, which is another short-term red flag. US stocks are still technically extended short-term and are still right near intermediate-term resistance, which likely means more sideways action near-term. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, a further subsiding of 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 lower energy prices, more tech sector optimism, short-covering, less Eurozone debt angst and investor performance angst.

Today's Headlines


Bloomberg:
  • Germany Put Joint Euro Bonds in 'Broom Closet,' Merkel Ally Says. Chancellor Angela Merkel’s government takes credit for quashing debate about joint euro- area bonds as part of its drive to make countries reduce debt, said Peter Altmaier, a senior coalition lawmaker. “We have shoved the debate on euro bonds where it belongs now and for the foreseeable future: into the broom closet,” Altmaier, the parliamentary whip for Merkel’s Christian Democratic Union, told reporters in Berlin today.
  • Ireland to Hold Vote on EU Fiscal Compact. Ireland will hold a referendum to ratify the European fiscal compact, after government ministers said such a vote would effectively amount to a show of commitment to the euro.
  • Kraemer Says Greek Debt Swap May Impede Portugal Selling Bonds. Moritz Kraemer, head of sovereign ratings at S&P, said the terms of Greece's debt restructuring and teh ECB's move to isolate itself from any resulting losses may make it harder for other indebted euro nations such as Portugal to raise financing. "Some of the decisions that have been taken recently may make re-accessing the capital markets harder, rather than easier," Kraemer said in an interview with Bloomberg. "Many of these decisions may actually make it harder for countries like Portugal to return to the markets."
  • JPMorgan(JPM) Says Credit, Swaps Lead Trading-Revenue Sources in Rare Breakdown. JPMorgan Chase & Co. (JPM) said interest- rate swaps and credit are among the biggest sources of revenue in its trading businesses, as it broke with most U.S. rivals by releasing a breakdown typically kept secret. JPMorgan generates $375 million from credit trading in a “typical quarter” and $350 million each from interest-rate swaps and foreign-exchange spot and futures trading, the New York-based bank said today in a presentation to investors. Cash equities produces about $325 million, while the bank gets $300 million a quarter from asset-backed securities.
  • China's Iron Ore Imports May Drop 14%. Higher iron ore prices and rising competition have cut profit margins for Chinese steelmakers to a record low of 0.43 percent in November, according to the China Iron and Steel Association. Ore prices rose for a sixth straight day yesterday after China’s central bank cut reserve requirements by a half- point on Feb. 18, spurring lending.
  • Banks' Earnings Rose 23% on Loan-Loss Provisions, FDIC Says. U.S. lenders had net income of $26.3 billion in the fourth quarter, increasing earnings by 23.1 percent over the same period in 2010 on lower provisions for loan losses, the Federal Deposit Insurance Corp. said today. Lenders put aside 12.1 percent of net operating revenue for bad loans, and charge-offs fell by 40 percent to the lowest level since the first quarter of 2008, the FDIC said in its Quarterly Banking Profile released in Washington. Loan losses fell to $25.4 billion, the lowest in 15 quarters, the FDIC said. Full-year earnings reached $119.5 billion, the highest since 2006, the agency said. “Gains have been driven by reductions in provisions for loan losses, and that can’t go on indefinitely,” FDIC Acting Chairman Martin Gruenberg said in a briefing with reporters. “The real key is going to have to be a pickup in lending.”
  • EPA Greenhouse Gas Limits Face Appeals Court Challenge Over Public Danger. The U.S. Environmental Protection Agency’s limits on vehicle and industrial emissions of greenhouse gases including carbon dioxide are being scrutinized by U.S. judges as a two-day court hearing began in Washington. The three-judge panel of the U.S. Court of Appeals is considering challenges to the agency’s finding that greenhouse gases are pollutants that endanger human health, and to rules determining when states and industries must comply with regulations curtailing their use. Companies such as Massey Energy Co., business groups including the U.S. Chamber of Commerce and states led by Texas and Virginia are seeking to stop the agency through more than 60 lawsuits. They argue that the agency relied on biased data from outside scientists, including some affiliated with the so-called climategate scandal.
  • Obama Skirts Deadlock With Executive Orders Favoring Allies. President Barack Obama is targeting the concerns of political constituencies pivotal to his re- election one signature at a time. Stymied in Congress by Republican opposition, Obama has used his executive power in recent months to issue a battery of presidential directives aimed at goals of Democratic-leaning interest groups and voters in battleground states.
  • U.S. Durable Goods Orders Slump Most in 3 Years. Orders for U.S. durable goods fell in January by the most in three years, led by a slowdown in demand for commercial aircraft and business equipment. Bookings (DGNOCHNG) for goods meant to last at least three years slumped 4 percent, more than forecast, after a revised 3.2 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists projected a 1 percent decline, according to the median forecast in a Bloomberg News survey.
  • Consumer Confidence Rises to One-Year High. Confidence among U.S. consumers climbed to a 12-month high in February, signaling household spending will help sustain the expansion. The Conference Board’s index increased more than forecast, to 70.8 from 61.5 in January, figures from the New York-based private research group showed today. Economists projected the gauge would climb to 63, according to the median estimate in a Bloomberg News survey.
  • Home Prices in 20 U.S. Cities Decline 4%. Home prices in 20 U.S. cities dropped more than forecast in December to the lowest level since the housing crisis began in mid-2006, indicating foreclosures are hampering the industry’s recovery. The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from a year earlier, after decreasing 3.9 percent in November, a report from the group showed today in New York. The median forecast of 31 economists surveyed by Bloomberg News called for a 3.7 percent decline.
  • Oil Declines in New York as Durable Goods Orders Fall Most in Three Years. Oil fell for a second day after U.S. orders for durable goods dropped in January by the most in three years, signaling slower economic growth and lower fuel demand. Futures declined as much as 2.1 percent in New York as data from the Commerce Department showed bookings for goods meant to last at least three years slumped 4 percent.
  • Gold Gains in New York on US Dollar Weakness. Gold advanced to a three-month high and silver posted its biggest gain in eight weeks as investors bought precious metals as an alternative to a weakening dollar. Platinum and palladium also rose. Gold futures for April delivery advanced 0.8 percent to settle at $1,788.40 an ounce at 1:30 p.m. on the Comex in New York, after climbing to $1,792.70, the highest level for a most- active contract since Nov. 14. Prices are up 14 percent this year after a 10 percent increase in 2011, the 11th consecutive annual gain, as investors sought to diversify from equities and some currencies. The dollar index has declined 1.2 percent this month while gold advanced 2.8 percent.
  • IBM(IBM) Cuts More Than 1,000 Workers, Group Says. International Business Machines Corp. (IBM), the world’s largest computer-services provider, fired more than 1,000 workers in North America this week, according to an employee advocacy group.
Wall Street Journal:
  • Occupy Groups Get Funding. A group of business leaders—including Ben Cohen and Jerry Greenfield of Ben & Jerry's ice cream and former Nirvana manager Danny Goldberg—are planning to pour substantial funds into the Occupy Wall Street movement in hopes of sustaining the protests and fostering political change. Their goal is to provide some ballast to an amorphous movement that captured the world's attention with nonstop, overnight protests in dozens of cities but has had trouble regaining momentum since most of those encampments were broken up by police in the past few months. The latest Occupy supporters call themselves the Movement Resource Group and have raised about $300,000 so far to parcel out in grants to protesters, said Mr. Cohen. Their goal is to raise $1.8 million. A little more than two-thirds was donated by the Ben & Jerry's Foundation and members of the group's steering committee, which includes Dal Lamagna, founder of the company Tweezerman, entertainment-industry executive Richard Foos and Judy Wicks, founder of the White Dog Café in Philadelphia, along with Messrs. Cohen, Greenfield and Goldberg. The remainder—about $60,000—came from individual donors, including Norman Lear, a television producer and philanthropist, and Terri Gardner, former president and chief executive of Soft Sheen hair products. "Many of us have been working for progressive social change," Mr. Cohen, a prominent supporter of liberal causes, said Monday. "There's been a critical ingredient missing."
  • Paulson: More Likely Than Not That Euro 'Falls Apart'. Billionaire hedge fund manager John Paulson, who wrongly bet on a stable economic recovery especially in the U.S., is now positioning for lingering woes in the euro zone, if not a complete breakdown of the currency. "It is certainly possible that the status quo can be extended indefinitely with continued bailouts, transfer payments and the European Central Bank's quantitative easing, but it seems more likely that the pressure to keep the Euro together becomes too great and it ultimately falls apart," he said in a letter to investors.
  • Focus Turns Now to Greek CDS Payouts. An unidentified market participant has asked a committee of the International Swaps and Derivatives Association to rule on whether the passage of legislation approving collective-action clauses for Greek debt should trigger payouts on credit-default swaps tied to Greek sovereign bonds. The move comes after Standard & Poor's cut Greece's long-term credit rating to selective default from double-C, making Greece the first euro-zone member officially to be rated in default, 13 years after the euro was adopted to strengthen the European Union.
  • Fatal Riots Erupt in China's Xinjiang. At least 12 people were killed during riots in China's far-western Xinjiang region on Tuesday, according to Chinese state media, in what appeared to be the most severe uptick in unrest in the restive area since last summer. The state-run Xinhua news agency reported that angry mobs killed 10 people in Yecheng County, in Kashgar prefecture. At least two suspected assailants were killed by police, Xinhua said, and authorities were continuing to search for other suspects Tuesday evening.
  • U.N. Boost Syria Death Toll, Amid Conflicting Reports of Evacuations. The United Nations raised the death toll in Syria to 7,500 people and called for an immediate cease-fire, as conflicting reports emerged about efforts to rescue injured foreign journalists trapped in the besieged city of Homs.
CNBC.com:
  • OPEC Leaders Are 'Laughing at Us': Donald Trump. (video) The leaders of OPEC are "sitting around their table, setting the price of oil and laughing at us because we have no leadership," real estate mogul Donald Trump told CNBC Tuesday.
Business Insider:
Zero Hedge:

Gallup:

9to5Mac:
Reuters:
  • Brazil Lending Falls for First Time in Three Years. Bank lending in Brazil contracted in January for the first time in almost three years while more consumers and companies fell behind on their loan installments, in another sign of the abrupt slowdown afflicting Latin America's largest economy. Outstanding loans in Brazil's banking system fell 0.2 percent in January from December, the first month-on-month drop since the 0.02 percent decline recorded in February 2009, the central bank said on Tuesday.
  • Top Republican Raises Heat on Obama in Keystone Letter. The top Republican in Congress wrote to President Barack Obama on Tuesday to urge him to "change course" and approve a controversial oil pipeline, seeking to keep up election-year pressure on the Democrat amid rising gasoline prices. U.S. House of Representatives Speaker John Boehner also said Obama should fulfill his promise of an "all of the above" approach to ease U.S. dependence on foreign oil and drop opposition to legislation expanding domestic production.

Telegraph:

  • Big Trouble in China for Big Four Auditors. The "Big Four" auditors face being squeezed out of the Chinese market after a spate of high-profile accounting scandals sparked a backlash against international firms in China.
Maerkische Allgemeine:
  • Greece may require additional support beyond the second bailout package, Luxembourg Prime Minister Jean-Claude Juncker, who also heads the group of euro-area finance ministers, said in an interview.

Die Welt:

  • Large banks won't lend money to Greece anytime soon, given the losses they've incurred, citing a confidential report by the Institute of International Finance. The financial industry may also be less willing to lend to Portugal, Ireland and Spain in the coming months, given that these countries are struggling to meet savings goals, citing the report.

Bear Radar


Style Underperformer:

  • Small-Cap Value -1.0%
Sector Underperformers:
  • 1) Education -8.50% 2) Construction -2.80% 3) Oil Tankers -2.0%
Stocks Falling on Unusual Volume:
  • APOL, HXM, RDC, SWN, LPI, FNSR, VNO, IPGP, TECD, TRAK, TZOO, SYKE, STRA, AMED, VVUS, CLNE, HSII, YRCW, GLNG, CPLA, TRS, APEI, LOPE, DNDN, GIFI, OKS, WCN, CVC, FDP, GXP, OMG, CCO, RBA, UNG, VSI, EPB, URS, FRC, CTB, HFC, WNR, BPI and AMED
Stocks With Unusual Put Option Activity:
  • 1) APOL 2) XLK 3) EWW 4) JAH 5) PCLN
Stocks With Most Negative News Mentions:
  • 1) ENOC 2) SWN 3) UTX 4) APOL 5) CVX
Charts:

Bull Radar


Style Outperformer:

  • Large-Cap Growth +.55%
Sector Outperformers:
  • 1) Semis +1.68% 2) Airlines +1.29% 3) Internet +1.20%
Stocks Rising on Unusual Volume:
  • SINA, IMOS, CREE, YOKU, GNTX, ZAGG, BCPC, PCLN, GTLS, SLXP, PRGO, TTEK, JIVE, SODA, RAIL, CTRP, NTES, SPLS, ASML, DPZ, BRY, AZO, CHMT, LAD, SAH, MRX and USG
Stocks With Unusual Call Option Activity:
  • 1) CVC 2) SPLS 3) AZO 4) MU 5) APOL
Stocks With Most Positive News Mentions:
  • 1) SLXP 2) PCLN 3) PG 4) APOL 5) HOV
Charts:

Tuesday Watch


Evening Headlin
es
Bloomb
erg:
  • Greece Cut to Selective Default by S&P. Greece’s credit ratings were cut to “Selective Default” by Standard & Poor’s after it negotiated the biggest sovereign debt restructuring in history. S&P dropped Greece’s rating from CC, two levels above default, after the government added clauses to its debt designed to mop up investors unwilling to take part in the exchange, the New York-based company said in a statement today. The downgrade follows a reduction last week by Fitch Ratings to C, while Moody’s Investors Service has said it will cut the nation to its lowest rating. Greece published the formal offer document last week for its agreement to exchange bonds for new securities, with investors taking a haircut of 53.5 percent. The restructuring uses so-called collective action clauses to discourage holdouts, the use of which would trigger credit- default swap insurance contracts on the nation’s debt, according to the rules of the International Swaps & Derivatives Association.
  • ECB Special Lender Status Threatens Bond Backlash: Euro Credit. The ECB's willingness to ride roughshod over bondholder rights risks pushing up borrowing costs for indebted governments by making investors less willing to lend. The ECB swapped about $67 billion of Greek bonds for new notes, identical to the old ones in every way save for their identification numbers, according to Moritz Kraemer, head of sovereign ratings at S&P. The switch exempts the central bank from the largest sovereign restructuring in history as Greece rewrites the terms of its securities to ensure lenders forgive 53.5% of the debt. "Bondholders are effectively being subordinated," said Saul Doctor, a credit strategist at JPMorgan Chase & Co. in London. "Foreign investors are going to be less willing to buy sovereign bonds when the ECB can exert itself."
  • Rajoy Faces Tougher Budget Task This Year After Spain's 2011 Deficit Miss. Spain missed its 2011 deficit target by a wider-than-estimated margin, adding to the task facing the government to meet budget targets as the economy shrinks. The deficit narrowed to 8.5 percent of gross domestic product from 9.3 percent in 2010, overshooting the government’s previous estimate of around 8 percent, and a European Union target of 6 percent, Budget Minister Cristobal Montoro said in Madrid late yesterday. “We are going to promote budget stability as soon as possible with a credible path,” Montoro said. “We are in a recession and that must be recognized, which means implementing a budget policy that’ll lift us of this recession.”
  • Credit Swaps Panel Asked If Greek Parliament Triggered Payouts. A committee of banks and investors that governs credit-default swaps was asked to rule whether Greece’s parliament triggered payouts on contracts that protect against losses on the country’s debt. The International Swaps and Derivatives Association’s determinations committee was asked whether a so-called restructuring credit event was caused by publication today of legislation that the Greek parliament passed as part of its agreement to exchange bonds for new securities, the trade group said on its website. The restructuring, in which bondholders take a 53.5 percent reduction in the value of their investments, uses collective action clauses to discourage holdouts. The use of such clauses would trigger swap contracts, according to ISDA rules. The committee is being asked whether the contracts have already been triggered because the deal gives the European Central bank and national central banks “a change in the ranking in priority of payment” by allowing them to exchange out of their eligible debt prior to the collective-action clauses taking effect, according to the ISDA website. The committee will decide whether to accept the question by Feb. 29, ISDA said in a statement today.
  • Europe Puts Highest Since July Before ECB Loan Package: Options. Options traders, concerned a three-month rally in European equities is ending, pushed bearish contracts to the highest level since July on an ETF that gets most of its value from the region's equities. Options to protect against a 10% drop in the iShares MSCI EAFE Index Fund cost 71% more than contracts betting on a 10% gain, according to data compiled by Bloomberg. Put volume jumped to a record on Feb. 24. The ETF has gained 16% since global equities bottomed last year on Oct. 4.
  • FHA to Increase Cost of Up-Front Mortgage Insurance Premiums. The Federal Housing Administration will increase the cost of up-front mortgage insurance premiums by 75 basis points as part of efforts to rebuild the agency’s insurance fund. The increase will apply only to new 30-year, single-family FHA loans and won’t affect the cost of streamlined refinancings, FHA Acting Commissioner Carol Galante said today in a call with reporters. The refinancing program allows FHA borrowers in good standing to qualify for a new, lower-rate FHA loan with minimal paperwork.
  • Syria Shells Northern Towns After Referendum. Syrian forces bombarded towns in the north of the country as the government of President Bashar al- Assad said voters had backed a referendum designed to introduce political pluralism after almost a year of violence. Assad, facing international pressure to end his crackdown on dissent, is seeking to affirm his mandate as Syria’s leader with a new constitution. The European Union decided to tighten sanctions yesterday as EU politicians dismissed the validity of the previous day’s vote. The state-run Syrian Arab News Agency said 89.4 percent of voters backed the charter, which promises democratic elections while limiting presidents to two seven-year terms. “The referendum in Syria is nothing more than a farce,” German Foreign Minister Guido Westerwelle said in a statement. “Phony votes cannot contribute to a solution to the crisis.”
  • Goldberg: Anti-Israel One State Plan Gets Harvard Outlet. For many years, Palestinian politics turned on a single idea: Palestine was stolen by the Jews, and so the Jews must be expelled -- “thrown into the sea,” the expression went. This week, Harvard University’s Kennedy School of Government will host a conference called “Israel/Palestine and the One State Solution,” whose goal is to “educate ourselves and others about the possible contours of a one-state solution and the challenges that stand in the way of its realization.” The conference will feature speakers such as Ali Abunimah, a veteran anti-Israel agitator, and Harvard’s own Stephen M. Walt, co- author with John Mearsheimer of the scapegoating Ur-text of anti-Israel argumentation, “The Israel Lobby.” In the best case, this new dystopia by the sea would be paralyzed by endless argument: “Two nationalities who have desperately sought a political frame for cultural and social independence would wrestle over control of language, art, street names, and schools.” In the worst case, Gorenberg writes, political tensions “would ignite as violence.” There are people, perhaps including some of the Harvard students organizing the conference, who advocate “one-statism” out of naivete. But the leaders of the movement are not naive. They understand their project shares a goal with Hamas: the elimination of Israel as a homeland and haven for Jews.
  • Oil Tankers Seen Falling 42% as Japan Weakens Most Since Tsunami: Freight. The largest drop in Japanese oil consumption since last year’s earthquake and tsunami may cause tanker rates to plunge 42 percent next quarter, threatening the biggest rally in shares of shipping companies since 2005. Demand in Japan, the second-largest destination for supertankers after China, will drop 19 percent in the second quarter from now, according to the International Energy Agency in Paris. Daily rates for the 1,000-foot-long ships will average $17,000, compared with $29,280 now, the median of nine analyst estimates compiled by Bloomberg show.
Wall Street Journal:
  • Europe's Narrow Credit-Crunch Escape. It may be asking too much to expect the LTROs to spur an increase in lending overall. Most analysts expect banks to continue to deleverage, despite the offer of unlimited cheap funding. That is partly because banks will worry about extending new loans beyond three years since this would leave them with a potentially tricky refinancing risk when the ECB loans mature. Banks may also be reluctant to tie up collateral for ECB facilities since an over-encumbered balance sheet could restrict future access to senior unsecured bond markets. And while there is no stigma to borrowing from the LTRO, some banks may worry that too much reliance on subsidized funding may invite a political backlash. For example, HSBC, which borrowed in the first LTRO to fund euro-denominated assets, will keep profits from the trade out of its bonus pool. That suggests the LTRO may not deliver much of a kick to the real economy. For that, governments must repair balance sheets, push through structural reforms and strengthen institutions. All the ECB liquidity has done is to buy the real economy some time.
  • Lilly(ELY) Faces Payment Delays From Health Systems In Italy, Spain. Drug maker Eli Lilly & Co. (LLY) said it has experienced delays in payments for its products from national health systems in Spain and Italy--the latest example of pressure on the pharmaceuticals industry stemming from the European financial crisis. Indianapolis-based Lilly, which makes the antidepressant Cymbalta, has seen the payment delays in certain countries including, but not limited to, regions within Spain and Italy.
  • Did These Stocks Have 'Mini Flash Crashes' Last Week? The folks at Themis Trading, who have been among the most outspoken critics of high frequency trading, point to some irregular trading activity in the shares of Thermo Fisher Scientific and Pall Corporation last week.
  • U.S. Considers New Message on Iran. Complaints from Israel about the U.S.'s public engagement with Iran have pushed the White House to consider more forcefully outlining potential military actions, and the "red lines" Iran must not cross, as soon as this weekend, according to people familiar with the discussions. President Barack Obama could use a speech on Sunday before a powerful pro-Israel lobby to more clearly define U.S. policy on military action against Iran in advance of his meeting on Monday with Israeli Prime Minister Benjamin Netanyahu, these people said.
Fox News:
MarketWatch:
  • Chinese Real-Estate Facing Pressure: Credit Suisse. Price cuts by mainland Chinese real-estate developers suggest profits will be under increasing pressure this year, according to Tuesday research published by Credit Suisse, which said the consensus view has been too optimistic on the earnings outlook for the property sector. In the note, the broker maintained its underweight view on Chinese real-estate developers, citing price reductions.
Business Insider:
Zero Hedge:

IBD:

NY Times:

  • Yahoo(YHOO) Warns Facebook(FB) of a Potential Patent Fight. As Yahoo struggles to keep up with younger competitors, the Web portal company is weighing a new tactic: threatening legal action over its patent holdings. Yahoo is seeking to force Facebook into licensing 10 to 20 patents over technologies that include advertising, the personalization of Web sites, social networking and messaging, people briefed on the matter told DealBook.
  • Pressure Grows on Fannie and Freddie to Reduce Principal on Some Loans. California’s attorney general, Kamala D. Harris, has ratcheted up the pressure on Fannie Mae and Freddie Mac to allow debt reduction on their home loans by asking the mortgage finance giants to halt foreclosures in the state.
CNN:
Chicago Tribune:
Real Clear Politics:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends). That’s the president’s lowest rating in over a month.
AP:
  • Israel Won't Warn US Before Iran Strike. The pronouncement, delivered in a series of private, top-level conversations, sets a tense tone ahead of meetings in the coming days at the White House and Capitol Hill. The apparent decision to keep the U.S. in the dark also stems from Israel's frustration with the White House. After a visit by National Security Adviser Tom Donilon in particular, they became convinced the Americans would neither take military action, nor go along with unilateral action by Israel against Iran. The Israelis concluded they would have to conduct a strike unilaterally -- a point they are likely to hammer home in a series of meetings over the next two weeks in Washington, the official said.
Reuters:
  • Priceline(PCLN) Quarterly Profit Jumps, Bookings Rise. Online travel agency Priceline.com on Monday reported a stronger-than-expected fourth-quarter profit as the value of its bookings gained more than 50 percent from a year ago, sending its shares up more than 6 percent.
  • Sina(SINA) Revenue View Misses Street, Shares Down. Sina Corp, the operator of China's largest Internet portal, posted a quarterly profit in line with analysts' estimates, but forecast a disappointing first quarter, sending its shares down 5 percent in aftermarket trade.
  • German Court to Rule on MP's Rights on Euro Bailouts. Germany's Constitutional Court will rule on Tuesday whether a small sub-committee in parliament is representative enough to take decisions over whether the country should grant help to heavily indebted euro zone countries such as Greece in future.
Financial Times:
Telegraph:

Tagesspiegel:
  • Germany's opposition leader Frank-Walter Steinmeier said the lack of an absolute majority in a vote on Greek aid shows Chancellor Angel Merkel's authority is "severely damaged," citing an interview.
People's Daily:
  • China will set up an electricity price policy "soon" that punishes companies for exceeding limits for industrial energy use, citing a Ministry of Industry and Information Technology official.
Xinhua:
  • China's National Development and Reform Commission will continue to introduce measures to stabilize prices and ensure the supply of basic necessities, citing Zhou Wangjun, deputy director at the price department of the commission.
Apple Daily:
  • Macau Feb. Gaming Revenue Growth May Slow to 15.8% Y/Y. The percentage growth may be the lowest in over 3 years, the report said. Macau Jan. casino revenue growth rose 35% y/y.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 164.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 134.0 +2.25 basis points.
  • FTSE-100 futures +.03%.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.12%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (VPHM)/.55
  • (TECD)/1.66
  • (RDC)/.30
  • (CVC)/.23
  • (SAFM)/.18
  • (AZO)/4.04
  • (ODP)/.00
  • (DWA)/.31
  • (WRC)/.99
  • (CPRT)/.59
  • (FSLR)/1.56
  • (DPZ)/.49
Economic Releases
8:30 am EST
  • Durable Goods Orders for January are estimated to fall -1.0% versus a +3.0% increase in December.
  • Durables Ex Transports for January are estimated unch. versus a +2.1% gain in December.
  • Cap Goods Orders Non-Defense Ex Air for January are estimated to fall -1.4% versus a +2.9% gain in December.
  • Cap Goods Shipments Non-Defense Ex Air for January are estimated to fall -2.0% versus a +2.9% gain in December.

9:00 am EST

  • S&P/CS 20 City MoM% SA for December is estimated to fall -.35% versus a -.7% decline in November.

10:00 am EST

  • Consumer Confidence for February is estimated to rise to 63.0 versus 61.1 in January.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Fed's Duke speaking, Fed's Pianalto speaking, results of the latest LTRO program, weekly retail sales reports, Italian/German Bond Auctions, Richmond Fed Manufacturing Index for February, Morgan Stanley Tech/Media/Telecom Conference, RBC Healthcare Conference, (JPM) Investor Day and the (JNPR) Analyst Meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted 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 day.