BETWEEN THE HEDGES

Monday, May 21, 2012

Monday Watch

Posted by Gary .....at 12:22 AM

Weekend Headlines
Bloomberg:

Spain May Have to Revise Its 2011 Budget Deficit. Concern grew for the stability of Spain's place in the fragile eurozone economy after reports of a rise in the level of bad loans on the books of its banks and word from the government Friday that it may have to revise its 2011 budget deficit upwards for a second time. The Bank of Spain reported that lenders' and savings banks' bad loan ratio had risen in March to an 18-year high of 8.36 percent from 8.15 percent the previous month. The Finance Ministry then said in a statement late Friday the deficit could reach 8.9 percent of GDP after four of its 17 regions overshot their expected budgets. The regions mentioned were Madrid, Valencia, Andalusia and Castilla-Leon. News of the increase in bad loans followed a downgrading by credit ratings agency Moody's late Thursday of the country's banking industry. Spain's budget deficit is higher than the 3 percent threshold that was supposedly part of the euro's economic framework. The incoming government of Prime Minister Mariano Rajoy earlier had to revise the figure upwards to 8.5 percent of GDP from the 6 percent forecast by the previous, Socialist government.
French PM Says ‘No Taboos’ in Greek Solution, Liberation Reports. French Prime Minister Jean-Marc Ayrault said no potential solutions to the Greek debt crisis should be regarded as “taboo” when European heads of state meet on May 23, Liberation reported, citing an interview. Measures such as allowing states to borrow directly from the European Central Bank should not be excluded from discussions, the new premier said, according to the newspaper. “A climate of uncertainty” in Europe is driving Greece to a “panic” over banks and contributing to political instability, Liberation quoted Ayrault as saying. A report from the French state audit board on the status of public accounts should be delivered by June so that President Francois Hollande’s government can plan to offset new expenses with equivalent savings as it seeks to cut the public deficit to zero by the end of his five-year term, Liberation said.
Euro Crisis Resolution Sought by Franco-German Leaders After G-8. German and French leaders meet this week to map out a revised plan for the euro as the Group of Eight exposed disagreement on a rescue strategy, Greece lurched toward a possible exit and Spain’s budget deficit widened. German Finance Minister Wolfgang Schaeuble will for the first time discuss the 17-nation currency at a meeting with his newly installed French counterpart, Pierre Moscovici, in Berlin today as European Union leaders prepare for a summit meeting in Brussels on May 23. After three shorter meetings in the last week, Chancellor Angela Merkel and French President Francois Hollande will seek to balance France’s desire to jump-start growth with Germany’s preference for spending cuts.
Greek Anti-Bailout Leader to Meet French, German Left, AFP Says. Alexis Tsipras, the head of Greek anti-bailout party Syriza, will hold a meeting tomorrow in Paris with Jean-Luc Melenchon, leader of France’s radical left party, and Pierre Laurent, president of the European left party of which Tsipras is vice president, Agence France-Presse said. Tsipras will also stage a press conference with Laurent and Melenchon before traveling to Berlin on May 22 to meet with Klaus Ernst and Gregor Gysi, co-presidents of Germany’s Die Linke party, AFP reported, citing Athens-based Syriza.
Germany’s Bosbach Says Greece Should Leave Euro Area, WiWo Says. Wolfgang Bosbach, chairman of the domestic affairs committee in Germany’s lower house of Parliament, or Bundestag, said Greece should leave the euro region to overhaul its economy, WirtschaftsWoche reported, citing an interview. “That would clear the way for new growth,” Bosbach was quoted as saying in an e-mailed pre-release of a story that will run in the May 21 issue of the German magazine. “Then we could also talk about some kind of European Marshall Plan for Greece.”
Thomas Cook Says German Vacationers Shun Greece, Euro Reports. German vacationers are avoiding Greece amid violent protests over the country’s response to the fiscal crisis, even as tour operators offer discounts, Euro am Sonntag reported, citing an interview with Michael Tenzer, tourism chief at Thomas Cook Group Plc. German bookings for Greece until the beginning of the summer season fell 30 percent from a year earlier, Tenzer told the newspaper. Thomas Cook is passing on discounts of as much as 20 percent from airlines and hotel operators, he said.
EU Plans to Phase Out Solar, Wind-Energy Subsidies, FAZ Reports. The European Commission plans to phase out solar and wind-power subsidies as soon as possible, Frankfurter Allgemeine Zeitung reported, citing a strategy paper Energy Commissioner Guenther Oettinger will present next month in Brussels. European Union countries have to increase the flexibility of their plans and reduce subsidies because renewable energy technology has developed much faster than expected and prices have dropped, the newspaper said, citing the paper.
Greek Euro Exit May Deepen U.K. Recession, Chote Tells Guardian. A Greek exit from the euro would send the U.K. into a recession equal to the downturn in 2008 and 2009, Robert Chote, chairman of the U.K.’s Office for Budget Responsibility, told the Guardian in an interview. “The concern is that you end up with an outcome in the euro zone that creates the same sort of structural difficulties in the financial system and in the economy that we saw in the past recession,” Chote told the newspaper. “That has consequences both for hitting economic activity in the economy, but also its underlying potential.” Chote said the deepening crisis in the euro area may force him to revise his forecast made two months ago that the U.K. economy would grow 0.8 percent this year. A second deep recession may cause permanent damage to the economy, he said. “You go down and you never quite get back up to where you started,” he told the Guardian.
Spanish Prosecutor Calls for Probe of Savings Banks, Europa Says. Spain’s state prosecutor, Eduardo Torres-Dulce, has called for an investigation into the management of the nation’s savings banks, Europa Press reported, citing an interview. Torres-Dulce ordered the anti-corruption prosecutor, Antonio Salinas, to investigate “penal responsibility that may derive from the management of the savings banks,” the Madrid- based news service reported.
France May Nationalize Mortgage Lender CCCIF, Sunday Times Says. France may nationalize Caisse Centrale Credit Immobilier de France, one of its largest mortgage lenders, the Sunday Times reported, citing unidentified people with knowledge of the matter. A purchase of CCCIF by a competitor may be another option and HSBC Holdings Plc (HSBA) has been asked to find a buyer, the newspaper said.
JPMorgan's(JPM) Home-Loan Debt in Europe Increases Anxiety: Mortgages. JPMorgan Chase & Co. holdings of home-loan bonds from outside the U.S. soared 35-fold in the past three years. Now, with its chief investment office facing scrutiny after a $2 billion trading loss, investors are raising concern the European market’s biggest buyer will pull back. The largest U.S. bank by assets accelerated its purchases last quarter, adding $8.5 billion to lift its total to $74.5 billion, according to regulatory filings. The New York-based company’s investments approached 9 percent of the size of the Dutch and U.K. mortgage-bond markets it’s been focusing on. “If they stop buying, it would be pretty bad as they are one of the major buyers at the moment,” said Frank Erik Meijer, head of asset-backed securities at The Hague-based Aegon Asset Management, which manages 220 billion euros ($280 billion). “If they need to sell, that would certainly give rise to quite some” increases in yields relative to benchmark rates. JPMorgan bolstered prices and issuance when Europe’s lenders were forced to shrink and other potential buyers shunned asset-backed notes after U.S. subprime mortgage debt sparked a global credit crisis, according to six people at banks and investment firms active in the home-loan bond market who declined to be identified because they were speaking about a competitor. Chief Executive Officer Jamie Dimon, 56, last month described the securities as part of the chief investment office’s “very conservative” holdings, four weeks before announcing an unrelated $2 billion derivative loss that highlighted the division’s influence in certain credit markets.
S&P 500 Falls at 3 Times 2011 Rate As May Losses Deepen. Investors who warned stock losses in May would mimic last year’s decline in the Standard & Poor’s 500 Index (SPX) from the highest level since 2008 were wrong. The losses are three times worse. About $1 trillion has been erased from American equity values this month after speculation Greece will leave the euro region reversed the biggest first-quarter rally since 1998, according to data compiled by Bloomberg. That compares with $345 billion in the 13 days after April 29, 2011, when the S&P 500 reached its highest level in three years. Faltering stocks, reports showing weaker economic growth and concern about the economic health of countries from Spain to Italy is reminding investors of 2011, one of the most volatile years on record as the S&P 500 dropped as much as 19 percent. Investors bracing for a retreat pulled $18 billion from U.S. equity mutual funds in April, the most since at least 1984, according to the Investment Company Institute. “We are looking at bigger risks,” Peter Sorrentino, a fund manager who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview yesterday. “Unlike last year, where we had some time to kick the can down the road and there was room for hope, this year is worse because it looks like Europe is hitting the wall and the can’s not gonna go any further.”
Investors Least Bullish in 2012 as Crisis Escalates: Commodities. Hedge funds reduced wagers on a rally in commodities to the lowest this year on mounting speculation that Greece will leave the euro, slowing global growth and curbing demand for everything from copper to soybeans. Money managers reduced net-long positions across 18 U.S. futures and options by 15 percent to 616,841 contracts in the week ended May 15, the lowest since Dec. 27, Commodity Futures Trading Commission data show. Gold bets fell for a second week and to the lowest since December 2008, while copper holdings tumbled 69 percent, the most in five weeks. Cotton wagers tumbled to the lowest in five years.
Justice Department Probe of Credit Swaps Said to Widen. The U.S. Justice Department is expanding its antitrust investigation into data provider Markit Group Ltd. to include other companies in the credit-default swap market, according to three people familiar with the matter. Investigators are asking market participants about firms that are owned by Wall Street’s largest banks and whether that presents conflicts of interest, said the people, who spoke on condition of anonymity. The Justice Department is also asking about Tradeweb LLC and The Clearing Corp., which was bought by Atlanta-based Intercontinental Exchange Inc. (ICE) in 2009.
Asia Currencies to Extend Slide as Slump Deepens, Citigroup Says. Asian currencies are poised to keep falling after the biggest decline in eight months as the region’s economy slumps more than investors expect, spurring more interest-rate cuts, according to Citigroup Inc. Volatility will increase as Europe’s debt crisis hurts demand for Asian exports and prompts global money managers to favor the dollar’s safety over riskier assets, said Nadir Mahmud, the head of Asia-Pacific markets at Citigroup in Singapore, which ranked second in worldwide currency trading volume after Deutsche Bank AG in a Euromoney Institutional Investor Plc (ERM) survey. He has spent 26 years in the industry and oversees a team of more than 1,500 staff in 17 countries. “The slowdown in Asia which we’ll see in the very near term will catch the markets off guard,” Mahmud said in a May 16 interview. “What you will see is an up move in the dollar and a down move in interest rates which most people are not expecting.”
JPMorgan(JPM) Risk Overseer Said To Have Trading Losses Record. Irvin Goldman, who oversaw risks in the JPMorgan Chase & Co. (JPM) unit that suffered more than $2 billion in trading losses, was fired by another Wall Street firm in 2007 for money-losing bets that prompted a regulatory probe, three people with direct knowledge of the matter said. JPMorgan appointed Goldman in February this year as the top risk official in its chief investment office while the unit was managing trades that later spiraled into what Chief Executive Officer Jamie Dimon called “egregious,” self-inflicted mistakes. The bank knew when it picked Goldman that his earlier work at Cantor Fitzgerald LP led to regulatory sanctions against Cantor, according to a person briefed on the situation.
Afghanistan Commitment Tests Obama's Influence In NATO. President Barack Obama faces the task of persuading financially pressed European governments and their war-weary citizens to back Afghanistan’s security over the next decade. Obama met this morning in Chicago with Afghan President Hamid Karzai, who is sometimes harshly critical of his NATO allies. Obama is seeking to prevent a rush to withdraw from Afghanistan by U.S. allies ahead of 2014, when Afghan forces are to take over full security. The U.S. also wants allies, many enduring budget cuts, to help cover the $4.1 billion a year needed to finance Afghan security forces after 2014.

Barron's:

For Some, Disaster Is Spelled CDS. Figuring in the 2008-2009 financial crisis and the recent $2 billion blowup at JPMorgan Chase, this form of risk insurance often has turned out to pose a risk itself.

Wall Street Journal:

Austerity Plan Is Key for Athens, EU Chief Says. Greece shouldn't expect its international lenders to back down with any significant concessions to the austerity program it agreed on earlier this year, the head of the European Union executive said after he attended the Group of Eight summit at the U.S. presidential retreat here.
Critics: Chesapeake's(CHK) Murky Books Obscure Costs. As investors struggle to assess the health of embattled natural-gas producer Chesapeake Energy Corp., some say they are facing an obstacle: the company's accounting. Chesapeake, which pumps more gas in the U.S. than any company besides Exxon Mobil Corp., accounts for its exploration and drilling expenses using a method that accounting experts say is generally more aggressive and less transparent than the approach many other big energy companies use.
A Few Disconnects in CEO Pay. Some Delivered More Bang for the Buck, While Others Were Well Rewarded Despite Poor Results.
German Wages Are on the Upswing.

Marketwatch.com:

Chinese Dissident Arrives in U.S.: Reports. Chen Guangcheng, the Chinese dissident whose escape from 19 months of house arrest has tested Chinese-U.S. relations, has arrived in the U.S., ending a month-long diplomatic dispute, according to media reports.

Business Insider:

The Knives Come Out For Popular Democratic Mayor Cory Booker. Cory Booker seemed to shock the left this morning on "Meet the Press." Calling himself an "Obama surrogate," he said this when asked about the Obama campaign's attack ads this week on Mitt Romney's record at Bain Capital: “I’m not about to sit here and indict private equity. To me, we’re getting to a ridiculous point in America. "Especially that I know I live in a state where pension funds, unions and other people invest in companies like Bain Capital. If you look at the totality of Bain Capital’s record, they’ve done a lot to support businesses, to grow businesses. And this, to me, I’m very uncomfortable with.” Heads started to roll. Keith Olbermann tweeted that Booker "may have done progressive things, but he believes in nothing but Cory Booker." The left-heavy Think Progress went with an unflattering "Booker attacks Obama" headline for the "popular, progressive mayor" from Newark. Truth is, though, that Booker has always been thought of as something of a "moderate" or "centrist" Democrat, despite being perhaps their favorite rising star.
Traders Are Flipping Out Over Facebook(FB) SNAFU, And Want $100 Million From The NASDAQ(NDAQ).
Goldman(GS) Identifies Which Economic Indicators Really Matter.
JPMorgan's Potential Trading Loss Just Keeps Spiraling Higher.

Zero Hedge:

CNBC:

China Buyers Defer Raw Material Cargos. Chinese consumers of thermal coal and iron ore are asking traders to defer cargos and – in some cases – defaulting on their contracts, in the clearest sign yet of the impact of the country’s economic slowdown on the global raw materials markets. The deferrals and defaults have only emerged in the last few days, traders said, and have contributed to a drop in iron ore and coal prices. “We have some clients in China asking us this week to defer volumes,” said a senior executive with a global commodities trading house, who warned that consumers were cautious. “China is hand to mouth at the moment.”

NY Times:

Rising Greek Political Star, Foe of Austerity, Puts Europe on Edge. At 37, and looking not a bit his years, Alexis Tsipras is clearly enjoying his moment. He vaulted to prominence less than two weeks ago, when his previously obscure left-wing party placed second in national elections with the promise of repudiating the loan agreement Greece’s previous leaders signed in February. Since then, he has engaged in a high-stakes game of chicken with Europe’s leaders. While they have scrambled to put together contingency plans in case Greece exits the euro zone, Mr. Tsipras has calmly stated his case and let the rest of Europe sweat about the possibly disastrous ramifications if it does. “It’s true,” he said Friday, with a smile and a glint in his eye, during an interview in his small office in the Greek Parliament. “I like to play poker.” While Mr. Tsipras clearly has much of Europe on the run, he hardly seems to be breaking a sweat. “Our goal isn’t to blackmail or to terrorize, our goal is to shake them,” Mr. Tsipras said coolly of the foreign lenders whose austerity-for-loans deal he wants upended. “We want to convince them,” he said. “They need to change the policies in Greece and change the policies in Europe, otherwise Europe will be at very large risk.” In Mr. Tsipras’s view — which neatly dovetails with the rising anti-austerity tide across Europe — Greece’s problem is a European problem that needs a European solution. He insisted that he wants Greece to stay in the euro, just not under the terms of its current bailout. “The euro zone is a chain with 17 links,” he said, referring to its members. “Greece is one of these links. If one of these links breaks, the link is destroyed, but the chain falls apart, too.” Poker references aside, Mr. Tsipras insisted that it was really the financial markets driving much of the crisis, not him or Greece. “They don’t have any moral scruples, and if they push Greece out, they’ll just move on to the next country,” he said. The next countries in the firing line, he added, happen to be Italy and Spain — both too big to fail.
Obama: Stop Condescending to Women by Campbell Brown.

NY Post:

Ex-Paulson Partner Launching Own Hedge Fund. John Paulson’s stubborn bullishness cost the hedge fund superstar billions of dollars last year. Now one of the partners overseeing the bank stocks that dragged the firm down is starting a hedge fund of his own. Robert Lacoursiere, a former partner and head of global banks at Paulson, is launching equity hedge fund Petrarca Capital. He’s teaming with former Paulson & Co. colleague James Fotheringham, who was a senior vice president in the bank group. The new fund will also invest in financial stocks.

Washington Times:

Occupy Chicago Protests Rahm Emanuels House (video). Protesters gathered at a Chicago Transit Authority el station near Chicago Mayor Rahm Emanuel’s home this morning. They were starting a morning and afternoon of awareness about mental health issues. They are protesting the closing of several mental health clinics throughout the city, blaming Mayor Emanuel.

Financial Times:

Samsung Sees Slowdown in China Demand for Technolo0gy Goods. China's market for technology products may grow 7% this year, compared with 10% in 2011, citing Kim Young-ha, Samsung Electronics China CEO. The end of subsidies introduced by China to boost sales of electronic appliances is one of the reasons for weakening demand and "a bigger impact comes from lower consumer sentiment," he said.
US and UK Eye Reaction to Bank Failure. Regulators and central bankers in the US and UK are crafting the world’s first concrete plans to protect the broader financial system in the event that any of seven leading cross-border banks were to collapse. The “resolution plans”, being worked on by the Bank of England and the Financial Services Authority in the UK and the Federal Deposit Insurance Corporation in the US, have focused on “top-down bail-in” measures. These would see the authorities take over a failing group and force its shareholders and bondholders to take losses while keeping critical operating companies open.

The Telegraph:

The Most Pro-European Thing To Do Now Is Reject The Euro. Those readers who have been berating me for years for even considering the possibility of a country leaving the euro have recently fallen silent. (You know who you are.)
Multinationals Sweep Euros From Accounts On Daily Basis. When it comes to contingency planning for a eurozone break-up, it is typically a German company that has been ahead of the game.
Cracks Are Appearing In Europe's State-Backed Lenders. European taxpayers face having to bankroll a new wave of bailouts amid growing funding problems at state-backed borrowers across the region, according to senior bankers.

The Independent:

UK Warned of Credit Downgrade. The UK will lose its prized triple-A credit rating next year as a result of the recession and the euro crisis, according to one of the City's most respected bond fund managers. Richard Hodges, the manager of the Legal & General dynamic bond trust, said in the light of the euro sovereign debt crisis: "The question isn't will the UK be downgraded, but when? The ratings agencies haven't moved partly because they have bigger fish to fry. But as this crisis plays out it is inevitable that they will downgrade the UK, with its huge current account deficit, by 2013 at the latest."

The Guardian:

Santander UK Funds Ringfenced Under FSA Order. Santander UK has been prevented from transferring any cash back to its Spanish parent company since December under a voluntary agreement with the Financial Services Authority. The so-called "regulatory order" means that Santander UK needs the regulator's permission to transfer cash, underlining Santander UK's claim that its assets are ringfenced from its parent company. Concerns about the health of Spain's banks were growing following the mass downgrade by Moody's late on Thursday.

Sunday Times:

One third of British-owned homes in Greece and Spain have been put up for sale as the European debt crisis escalates, citing a report by HiFx, a foreign-exchange company. Thirty-nine percent of British property owners in Greece, and 34% in Spain are seeking to sell, about twice the normal rate, according to HiFx research. The value of homes in Greece would probably plunge 50% if the country exits the euro, citing HiFx.

Der Spiegel:

EU Ministers Doubtful About Greek Euro Membership. Luxembourg Prime Minister Jean-Claude Juncker, who heads a group of European finance ministers, said a majority of his peers have doubts about Greek membership of the euro. "If we had a secret vote about Greece remaining in the euro zone we'd have an overwhelming majority against it," the magazine quotes Juncker as telling Greek Finance Minister Filippos Sachinidis at a May 14 meeting in Brussels. Elections on June 17 are Greece's "last chance," and if no government can be formed to implement the agreed reform program "it is over," Juncker said.
French President Francois Hollande has "strong doubts" about plans to appoint German Finance Minister Wolfgang Schaeuble as chief of the Eurogroup.

NZZ am Sonntag:

Switzerland is seeing "enormous" investment inflows because of increasing concern about the future of the euro zone, citing a major business partner of UBS AG. Swiss financial market inflows were as much as 400% higher than normal on some days during the past week.

Cinco Dias:

Spain plans to reduce the number of public workers in its 2013 budget as a result of closing down public companies and foundations, citing people in the ruling People's Party it didn't name.

Sunday Business Post:

Irish home loans in arrears for more than 90 days may have risen to 10.5% in the first quarter from 9.2% at the end of last year, citing "informed sources".

Commercial Times:

Apple(AAPL) will probably ship 10m iPad Mini tablet computers this year, more than 6m previously planned.

Financial News:

China Cut of RRR Doesn't Imply 'Loosening'. China lowering its reserve requirement ratio doesn't imply that monetary policy has entered a "loosening phase," according to a commentary published in the Financial News newspaper by Xu Shaofeng. The commentary reiterated Chinese central bank governor Zhou Ziaochuan's comment that changes to the reserve requirement ratio are mainly for adjustment to market liquidity.

Weekend Recommendations

Barron's:

Made positive comments on (CPMK), (HES), (JCP) and (NEM).
Made negative comments on (FB).

Night Trading

Asian indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 199.50 -2.0 basis points.
Asia Pacific Sovereign CDS Index 161.0 +5.5 basis points.
FTSE-100 futures -.03%.
S&P 500 futures +.51%.
NASDAQ 100 futures +.65%.

Morning Preview Links

Earnings of Note
Company/Estimate

(TECD)/1.16
(CPB)/.52
(TDW)/.60
(URBN)/.20
(LOW)/.42

Economic Releases

None of note

Upcoming Splits

(FMC) 2-for-1

Other Potential Market Movers

The Chicago Fed National Activity Index for April, Deutsche Bank Financial Services Conference, UBS Oil/Gas Conference, Janney Consumer Conference and the Wells Fargo Gaming Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer staple shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Sunday, May 20, 2012

Weekly Outlook

Posted by Gary .....at 2:24 PM

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

BOTTOM LINE: I expect US stocks to finish the week mixed as rising global growth fears, less US economic optimism, rising Eurozone debt angst and high energy prices offset short-covering, bargain-hunting and technical buying. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.

Friday, May 18, 2012

Market Week in Review

Posted by Gary .....at 7:31 PM

S&P 500 1,295.22 -4.30%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 7:23 PM

Indices

S&P 500 1,295.22 -4.30%
DJIA 12,369.30 -3.52%
NASDAQ 2,778.79 -5.28%
Russell 2000 747.21 -5.42%
Value Line Geometric(broad market) 329.66 -5.63%
Russell 1000 Growth 606.62 -4.74%
Russell 1000 Value 634.26 -4.34%
Morgan Stanley Consumer 766.19 -3.11%
Morgan Stanley Cyclical 880.68 -6.88%
Morgan Stanley Technology 631.77 -5.50%
Transports 4,873.76 -5.19%
Utilities 464.16 -1.66%
Bloomberg European Bank/Financial Services 66.78 -9.21%
MSCI Emerging Markets 37.66 -6.46%
Lyxor L/S Equity Long Bias 1,006.75 -1.07%
Lyxor L/S Equity Variable Bias 810.78 -.11%
Lyxor L/S Equity Short Bias 539.17 unch.

Sentiment/Internals

NYSE Cumulative A/D Line 135,972 -4.87%
Bloomberg New Highs-Lows Index -528 -449
Bloomberg Crude Oil % Bulls 26.0 +100.0%
CFTC Oil Net Speculative Position 184,463 +.27%
CFTC Oil Total Open Interest 1,539,151 -3.25%
Total Put/Call 1.36 +9.68%
OEX Put/Call 1.09 -9.17%
ISE Sentiment 96.0 unch.
NYSE Arms .78 -40.0%
Volatility(VIX) 25.10 +26.19%
S&P 500 Implied Correlation 72.56 +5.19%
G7 Currency Volatility (VXY) 11.50 +19.9%
Smart Money Flow Index 10,831.51 -2.86%
Money Mkt Mutual Fund Assets $2.563 Trillion -.20%
AAII % Bulls 23.58 -7.17%
AAII % Bears 45.97 +9.30%

Futures Spot Prices

CRB Index 290.43 -.47%
Crude Oil 91.48 -4.40%
Reformulated Gasoline 288.95 -3.62%
Natural Gas 2.74 +9.58%
Heating Oil 283.0 -4.12%
Gold 1,591.90 +.79%
Bloomberg Base Metals Index 205.15 -2.04%
Copper 346.85 -5.18%
US No. 1 Heavy Melt Scrap Steel 394.0 USD/Ton -1.57%
China Iron Ore Spot 131.30 USD/Ton -4.58%
Lumber 288.50 +.10%
UBS-Bloomberg Agriculture 1,471.19 +2.67%

Economy

ECRI Weekly Leading Economic Index Growth Rate .40% +50 basis points
Philly Fed ADS Real-Time Business Conditions Index .2230 -6.30%
S&P 500 Blended Forward 12 Months Mean EPS Estimate 110.81 -.20%
Citi US Economic Surprise Index -25.10 -.8 point
Fed Fund Futures imply 66.0% chance of no change, 34.0% chance of 25 basis point cut on 6/20
US Dollar Index 81.29 +.97%
Yield Curve 143.0 -15 basis points
10-Year US Treasury Yield 1.72% -12 basis points
Federal Reserve's Balance Sheet $2.834 Trillion -.46%
U.S. Sovereign Debt Credit Default Swap 44.50 +7.23%
Illinois Municipal Debt Credit Default Swap 237.0 +7.22%
Western Europe Sovereign Debt Credit Default Swap Index 311.11 +8.98%
Emerging Markets Sovereign Debt CDS Index 320.13 +8.80%
Saudi Sovereign Debt Credit Default Swap 129.68 +7.48%
Iraq Sovereign Debt Credit Default Swap 437.50 -5.72%
China Blended Corporate Spread Index 641.0 +42 basis points
10-Year TIPS Spread 2.14% unch.
TED Spread 39.0 +1.5 basis points
2-Year Swap Spread 36.5 +2.75 basis points
3-Month EUR/USD Cross-Currency Basis Swap -52.50 -7.5 basis points
N. America Investment Grade Credit Default Swap Index 121.36 +15.71%
Euro Financial Sector Credit Default Swap Index 308.40 +16.28%
Emerging Markets Credit Default Swap Index 313.83 +16.52%
CMBS Super Senior AAA 10-Year Treasury Spread 168.0 +2 basis points
M1 Money Supply $2.218 Trillion -1.51%
Commercial Paper Outstanding 993.60 +2.80%
4-Week Moving Average of Jobless Claims 375,000 -4,000
Continuing Claims Unemployment Rate 2.6% +10 basis points
Average 30-Year Mortgage Rate 3.79% -4 basis points
Weekly Mortgage Applications 775.60 +9.18%
Bloomberg Consumer Comfort -43.6 -3.2 points
Weekly Retail Sales +3.10% +50 basis points
Nationwide Gas $3.71/gallon -.02/gallon
U.S. Cooling Demand Next 7 Days 11.0% above normal
Baltic Dry Index 1,141 +.26%
Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 40.0 unch.
Rail Freight Carloads 238,980 -.02%

Best Performing Style

Large-Cap Value -4.34%

Worst Performing Style

Mid-Cap Growth -6.11%

Leading Sectors

Education -.08%
Utilities -1.66%
Tobacco -1.82%
Gold & Silver -2.31%
Drugs -2.44%

Lagging Sectors

Homebuilders -9.64%
Steel -10.37%
Alternative Energy -11.73%
Oil Tankers -13.88%
Coal -16.02%

Weekly High-Volume Stock Gainers (4)

GRPN, NSM, OPNT and GHDX

Weekly High-Volume Stock Losers (27)

GCOM, RPT, GSM, GCO, TECD, OSUR, DKS, ANGI, LUK, MUSA, GLPW, GSVC, APEI, RRGB, MLM, LXU, JPM, APAGF, RNDY, MM, PHMD, PETD, ACAT, FRAN, JCP, AAP and ASEI

Weekly Charts
ETFs

Stocks

*5-Day Change

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Disappointing FB IPO, Technical Selling

Posted by Gary .....at 4:21 PM

Broad Market Tone:

Advance/Decline Line: Lower
Sector Performance: Almost Every Sector Declining
Volume: Above Average
Market Leading Stocks: Underperforming

Equity Investor Angst:

VIX 24.69 +.82%
ISE Sentiment Index 100.0 +12.36%
Total Put/Call 1.34 -6.29%
NYSE Arms .82 -33.20%

Credit Investor Angst:

North American Investment Grade CDS Index 123.62 +.38%
European Financial Sector CDS Index 308.41 +1.11%
Western Europe Sovereign Debt CDS Index 310.64 +.51%
Emerging Market CDS Index 314.04 -.87%
2-Year Swap Spread 36.75 +1.0 basis point
TED Spread 39.0 +1.5 basis points
3-Month EUR/USD Cross-Currency Basis Swap -52.50 -3.25 basis points

Economic Gauges:

3-Month T-Bill Yield .08% -1 basis point
Yield Curve 141.0 +1 basis point
China Import Iron Ore Spot $131.30/Metric Tonne -1.72%
Citi US Economic Surprise Index -25.10 unch.
10-Year TIPS Spread 2.13 +2 basis points

Overseas Futures:

Nikkei Futures: Indicating a -40 open in Japan
DAX Futures: Indicating -32 open in Germany

Portfolio:

Slightly Lower: On losses in my Biotech, Medical and Tech sector longs
Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 reverses morning gains and trades near session lows as it moves rapidly towards its 200-day moving average on rising Eurozone debt angst, a "disappointing" (FB) debut, high energy prices, rising global growth fears, less financial/tech sector optimism, technical selling and more shorting. On the positive side, Retail, Utility, Drug and Tobacco shares are holding up relatively well. Oil is falling -1.6% and Lumber is up +.92%. On the negative side, Coal, Alt Energy, Oil Tanker, Internet, Software, Computer, Semi, Disk Drive, I-Banking, Biotech, Hospital, HMO, Homebuilding, Airline and Gaming shares are under significant pressure, falling more than -1.75%. Cyclical and small-cap shares are underperforming. Tech and financial shares have also been heavy throughout the day. Copper is down -1.2%, Gold is rising +1.0% and the UBS-Bloomberg Ag Spot Index is gaining +.3%. Major Asian indices fell around -2.0% overnight, led down by a -3.4% decline in South Korea. South Korea’s KOSPI is down about -13.0% in 6 weeks and is now down -2.4% ytd. Major European indices are mostly lower, led down by a -1.3% decline in the UK. Italy fell another -.3% and is down -23.8% in 2 months(-13.3% ytd). Russian shares are declining another -1.8% today and are down -24.6% in about 2 months. The Bloomberg European Bank/Financial Services Index is falling -1.2%(-8.5% for the week) and is down -24.8% in 2 months. The Portugal sovereign cds is gaining +3.8% to 1,204.96 bps(+12.1% in 5 days), the Ireland sovereign cds is rising +4.2% to 702.66 bps(+18.0% in 5 days), the Japan sovereign cds is rising +1.0% to 108.83 bps(+10.1% in 5 days), the US sovereign cds is gaining +3.5% to 44.5 bps, the Emerging Markets Sovereign CDS Index is jumping +5.2% to 335.24 bps(+13.7% in 5 days) and the China sovereign cds is gaining +2.2% to 136.09 bps(+14.7% in 5 days). Moreover, the European Investment Grade CDS Index is rising +.6% to 182.79 bps(+14.3% in 5 days). US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -3.5% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -30.0% ytd. China Iron Ore Spot has plunged -27.5% since Sept. 7th of last year. Shanghai Copper Inventories have risen +442.0% ytd. Overall, recent credit gauge deterioration is a big worry as most key sovereign cds remain technically strong. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Moreover, the 10Y T-Note continues to trade too well, with the yield only 4 bps from its record low of 1.67%. Copper continues to trade poorly. The CRB Commodities Index is now technically in a bear market, having declined -21.1% since May 2nd of last year. Moreover, the euro currency continues to trade poorly, notwithstanding today's bounce off its early Jan. low. I still don't expect this low to hold over the coming months and still see significant downside in the currency from current levels over the longer-term. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging markets now, which will further pressure exports from the region and raise the odds of more sovereign/bank downgrades. Vague talk of “growth” initiatives doesn’t mean that much given what that normally means in Europe. Some of the recent selling in market-leader Apple(AAPL) was likely related to the Facebook(FB) IPO and the stock is trading better today given tech sector weakness. However, I am not ready to add to my position again due to broad market concerns. Long AAPL. While Facebook(FB) may outperform in the short-run due to its muted opening price, I would still not be a buyer around current levels for the intermediate-term given its valuation, slowing growth metrics and too many questions surrounding the company’s ability to further monetize its business model. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, a "disappointing" (FB) debut, more shorting, technical selling and less financial/tech sector optimism.

Today's Headlines

Posted by Gary .....at 3:08 PM

Bloomberg:

Spanish Banks Bad Loans Worsen as Recession Bites: Economy. More Spanish loans soured in March, fueling concern that the government's focus on making banks clean up real estate was too narrow as the country's economy entered a recession. Bad loans as a proportion of total lending jumped to 8.37 percent in March, the highest since August 1994, from a restated 8.30 percent in February, according to data published today by the Bank of Spain. As much as 8.21 billion euros of loans soured in the first quarter, 90 percent more than in the same period of last year. The regulator said a further 4.15 billion euros ($5.3 billion) of loans went bad, in addition to its original 143.82 billion-euro total for February before the number was restated. Spain's government said on May 11 it would make banks take charges of about 30 billion euros to cover potential losses on real-estate loans that are still performing, adding to about 54 billion euros of provisions and capital ordered in February. With unemployment topping 24 percent and the economy set to shrink 1.8 percent this year, according to International Monetary Fund estimates, analysts say the state will need to impose more charges on banks as the slump damages assets beyond real estate. "As the economy keeps getting worse, the banks will keep on having to make provisions to account for the negative impact of the lower activity and the higher unemployment," Steen Jakobsen, chief economist at Saxo Bank A/S, said by telephone. "The first step in reaching a solution is recognizing the scale of the problem, and we're not there yet."
Spanish Banks’ Bonds Slide After Moody’s Downgrades Ratings. Bonds of Spanish banks fell after Moody’s Investors Service downgraded 16 of the nation’s lenders and said it may cut seven of them again because of the state of the economy and the government’s deteriorating credit. The yield premium investors demand to hold the 1 billion euros ($1.23 billion) of senior unsecured 4 percent bonds due 2017 of Banco Santander SA (SAN), whose rating was cut three levels to A3 to match the sovereign, rose to 503 basis points more than similar-maturity German debt, according to Bloomberg Bond Trader. The spread demanded over the benchmark swap rate, 250 basis points when the notes were issued in March, rose to 392 basis points, the prices show.
Schaeuble Sees Two Years of Turmoil as G-8 Leaders Meet. German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy. More than 2 1/2 years after Greece revealed its bloated budget deficit, Europe has “known a lot of crisis,” Schaeuble said in a recorded interview broadcast today on France’s Europe 1 radio. “It’s practically normal.” Even so, “in 12 to 24 months we’ll see a calming of financial markets,” he said. At the same time, German Chancellor Angela Merkel’s government has a duty to voters to prepare for a potential Greek exit, Finance Ministry spokeswoman Silke Bruns said. “People have the right to expect the government to make preparations for all eventualities,” Bruns said at a regular government press briefing in Berlin today.
European Stocks Drop On Signs of Slowing Chinese Economy. European stocks fell for a fifth day, posting their biggest weekly selloff since September, amid signs of slowing growth in China and continued concern that Greece will have to leave the euro area. Rio Tinto Group and Volkswagen AG (VOW) led mining companies and carmakers lower. Industrial goods companies retreated after Caterpillar Inc. reported slowing sales. London Stock Exchange Group Plc paced rising shares after reporting that second-half profit quadrupled. The Stoxx Europe 600 Index (SXXP) slid 1.1 percent to 238.88 at the close in London. The equity benchmark slumped 5.2 percent this week and 7.2 percent so far this month. That would be the largest monthly drop since last August. “On a medium-term view, there is certainly valuation support for equities, particularly relative to government bonds which have now hit quite remarkable levels,” said Bill Dinning, an investment strategist at Kames Capital in Edinburgh which oversees about $79 billion. “However, that doesn’t help much in terms of timing. Obviously, we are back in a situation where the euro area is having an existential crisis.”
Emerging Market Stocks Head For Longest Streak Of Weekly Losses Since 1994. Emerging-market stocks fell, heading for the longest string of weekly losses since 1994, as Citigroup Inc. cut its estimate for the gauge and a drop in Chinese property prices dimmed the global growth outlook. The MSCI Emerging Markets Index (MXEF) sank 1.6 percent to 906.42 by 12:13 p.m. in New York, increasing its weekly loss to 6.7 percent, the most in eight months. The gauge erased its annual gain as Europe’s debt crisis worsened. The MSCI Bric Index fell for a ninth week as the ruble weakened 0.5 percent versus the dollar, dropping 11 days in the longest run of losses since January 2009. Russia’s Micex retreated to a seven-month low while Brazil’s Bovespa snapped an eight-day decline. Citigroup reduced its year-end estimate for the MSCI gauge of 21 developing nations to 1,100 from 1,225, citing concern Greece will exit the euro and China’s economy will slow further, Geoffrey Dennis, the brokerage’s global emerging-market strategist in New York, wrote in a report yesterday. China’s home prices fell in 46 of 70 cities in April, the National Bureau of Statistics reported today. “We’re seeing a huge dislocation globally with concerns about the euro zone, China slowdown and U.S. slowdown bubbling in the background,” Win Thin, global head of emerging market strategy at Brown Brothers Harriman & Co., said by phone today from New York. “The combination makes it hard to get positive on the risk assets in emerging markets. They’re getting pummeled along with everything else.”
Facebook(FB) Advances In Public Debut After $16 Billion IPO. Facebook Inc. (FB) rose in its trading debut following a record initial public offering that made the social network more costly than almost every company in the Standard & Poor’s 500 Index. (SPX) The shares advanced 8 percent to $41.05 at 1:33 p.m. in New York after earlier trading at the IPO price of $38, which valued the company at $104.2 billion. Facebook sold 421.2 million shares to raise $16 billion yesterday. “They squeezed the lemon dry here,” said Dan Veru, chief investment officer at Palisade Capital Management, who didn’t participate in the IPO. “They didn’t leave enough on the table. You want to price these things a little lower, so that the shares have better support in the aftermarket.”
Copper Open Interest Falls to Two-Year Low On Greece Worries. Copper open interest declined to the lowest level in almost two years on the London Metal Exchange, suggesting traders are closing out bets. Investors probably closed out bets on higher prices as market open interest in LME futures declined by 11,531 contracts to 414,375 lots in the week ended May 15, according to bourse figures. That’s the lowest level since June 23, 2010. The exchange’s benchmark contract for three-month delivery dropped 4.1 percent in the period.
Oil Falls Again On Europe. Futures fell as much as 1.3 percent after German Finance Minister Wolfgang Schaeuble said that financial market turmoil caused by the euro-zone crisis may last two more years. Prices are heading for the third straight weekly decline as U.S. consumer confidence dipped and American crude supplies climbed to the highest level since 1990. “All of the macroeconomic news has been negative,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “Oil is moving on what’s happening in Europe and what it will mean here. In February, people were afraid to sell oil and now they’re afraid to buy it.” Crude oil for June delivery fell $1.03, or 1.1 percent, to $91.53 a barrel at 2:11 p.m. on the New York Mercantile Exchange. The contract touched $91.40, the lowest level since Nov. 3. Prices have retreated 4.8 percent so far this week. Brent oil for July settlement slipped 19 cents to $107.30 a barrel on the London-based ICE Futures Europe exchange. The European benchmark dropped to $106.40, the lowest level since Dec. 21.
Yahoo(YHOO) Said In Talks to Sell 20% of Alibaba for $7 Billion. Yahoo! Inc. (YHOO) is in talks to sell about 20 percent of Alibaba Group Holding Ltd. for about $7 billion, a deal that would cut by half its stake in China’s largest e- commerce provider, a person with knowledge of the matter said.

Wall Street Journal:

CNBC.com:

Forget Greece, China Biggest Risk to Global Economy: Faber.
Euro Zone Crisis to Hit Eastern Europe: Region's Banks. The European Bank for Reconstruction and Development (EBRD) expects the economies of Eastern Europe and the former Soviet Union, as well as four countries in the Middle East and North Africa, to experience a "substantial" slowdown this year because of fallout from the euro zone crisis.

Business Insider: