Wednesday, May 23, 2012

Wednesday Watch


Evening Headlin
es
Bloomb
erg:
  • Merkel Faces Hollande Pleas to Shed 'Taboos'. A plea to shed “taboos” may put German Chancellor Angela Merkel in a corner today as she digs in against joint debt sales to counter Europe’s financial crisis. Merkel, the dominant figure in more than two years of crisis-fighting, heads to a Brussels summit unable to stifle calls for measures she opposes, including euro bonds, the use of European money to recapitalize banks, a bigger rescue fund and extra time for debt-swamped countries to cut spending. “Policy makers across the euro area continue to act in their own interest,” said David Song, a currency analyst in New York at DailyFX.com, the research unit of FXCM Inc. We may see a growing rift between France and Germany as the anti-austerity movement gathers pace.” The summit, the 18th since Greece was convulsed by debt and the first since an anti-austerity campaign carried Francois Hollande to France’s presidency, takes place with market indicators showing mounting stress on banks. European Union officials damped expectations for the 27- nation summit starting at 7 p.m., eying the next meeting on June 28-29 as the time to take pro-growth steps. The crisis in the 17 euro countries will come up tonight only “at the very end,” EU President Herman Van Rompuy said in a pre-summit letter. Merkel is on the defensive at home after her party was routed in elections in Germany’s largest state and internationally after her hard line on budgets was drowned out by pro-growth appeals at last week’s Group of Eight meeting.
  • War-Gaming Greek Euro Exit Highlights Hazards in 46-Hour Weekend. Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro. That's how much time the country's leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday's market opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios from 21 economists, analysts and academics.
  • CIC’s Jin Says Other Countries May Follow If Greece Exits Euro. Jin Liqun, chairman of China Investment Corp.’s supervisory board, said European authorities have shown a “lack of leadership” on the euro area’s debt crisis and other countries may leave if Greece exits the single currency bloc. “Ever since the debt crisis broke out, there has never been a master plan for a resolution,” Jin said at an event hosted by the Centre for Policy Studies in London late yesterday. “The core members of the monetary union certainly have to keep an eye out for possible copycats should the Greeks be allowed to escape from the crisis unscathed.”
  • Germans Afraid of Greek Anger Avoid Vacations in Blow to Economy. German taxi driver Rudolf Kugel, who says he’s visited Greece more times than he can count, won’t be going again anytime soon to the Mediterranean sunspot because he’s concerned about the reaction of local people. “They hold Germans responsible for all their misery,” said the 62-year-old from near Stuttgart. “You want to go on holiday to have a comfortable break, not to be lynched.” It’s thinking like Kugel’s which has contributed to declines of as much as a third in bookings from Germans planning their summer break in Greece, according to Air Berlin Plc (AB1) and TUI AG (TUI1), which owns Europe’s biggest travel company. Their avoidance is further hampering Greece’s economic woes. Tourism is Greece’s biggest industry, accounting for almost 16 percent of the country’s gross domestic product in 2011, and almost one in five jobs, according to the London-based World Travel and Tourism Council. The 2.2 million Germans who visited Greece last year represented the biggest national group at 13.6 percent of the total, according to the Hellenic Statistical Authority, ahead of the British at 10.7 percent.
  • Japan Boosts FDI in Asean to Reduce China Risk: Chart of the Day. Japan's foreign direct investment to Southeast Asia has surpassed that to China as Japanese companies alter plans because of rising Chinese labor costs. Japan's investment to the Association of Southeast Asian Nations more than doubled to $19.6 billion in 2011 from the previous year, according to the Japan External Trade Organization's figures using finance ministry data. In the same period, FDI to China and Hong Kong rose 52% to $14.2 billion. Rising wages and an aging population in China have prompted some Japanese businesses to diversify production away from Japan's largest trading-partner nation even as overseas investment has been steeped up because the yen has strengthened to a near-record versus the dollar. China's Ministry of Industry and Information Technology said last month average wages may increase about 20% nationwide this year. About 17.5% of Chinese are under the age of 15, compared with 28.5% in 1990, according to the U.S. Census Bureau.
  • Rubber Seen Poised For Glut On Weaker Chinese Growth. Supplies of rubber, used in tires and gloves, are set to exceed demand in the second half, reversing a shortage and pressuring global prices, as growth slows in Europe and China, the biggest consumer. Output may top consumption by 400,000 metric tons in the six months to December after a seasonal deficit of 150,000 tons in the first half, said Chris Pardey, chief executive officer of RCMA Commodities Asia, a Singapore-based trading company. A surplus will persist through 2014, said Prachaya Jumpasut, managing director of industry adviser The Rubber Economist.
  • Japan Rating Cut Rings Alarm for Diet Gridlocked on Taxes. Japan's sovereign-rating cut by Fitch Ratings escalated pressure on lawmakers to double the sales tax, with the Organization for Economic Cooperation and Development warning the nation's debt is heading into "uncharted territory." The local-currency rating was reduced one step, and foreign-currency grade two levels, to A+, the fifth-highest ranking, Fitch said in a statement yesterday. The Paris-based OECD said separately that boosting the 5 percent consumption levy is a "top priority."
  • World Bank Says Asia Must Watch Inflation As Expansion Slows. The World Bank said policy makers in Asia’s emerging economies must guard against inflation risks and be prepared to reverse policy easing, even as slowing growth in China and Europe’s sovereign-debt turmoil hurt exports.
  • Going Over U.S. 'Fiscal Cliff' May Mean Recession, CBO Says. The U.S. economy will probably tip back into recession next year if Congress doesn't address an impending "fiscal cliff," the Congressional Budget Office said. The nonpartisan agency said in a report today that the economy would contract at an annual rate of 1.3 percent in the first half of 2013 if lawmakers allow the George W. Bush-era tax cuts to expire as scheduled and don't head off $1.2 trillion in government spending cuts set to begin taking effect in January.
  • BofA(BAC) Will Buy Back $330 Million Of Mortgages From Freddie. Bank of America Corp., the second- biggest U.S. lender, will repurchase $330 million of home loans from Freddie Mac, the mortgage company supported by taxpayers, after flaws were found in how they were created.
  • Nasdaq(NDAQ) Official Concedes Facebook(FB) Missteps. A Nasdaq OMX Group Inc. official acknowledged that the exchange operator was unaware of all the problems affecting Facebook Inc.’s initial public offering as it worked to start trading on the morning of May 18, according to two people with direct knowledge of the discussions. Had the scope of the issues with the IPO auction been known before it began, Nasdaq wouldn’t have moved forward, Eric Noll, the executive vice president for transaction services, said in a call with brokers today, according to the people, who asked not to be identified because the talks were private.
Wall Street Journal:
  • JPMorgan(JPM) Exposed on Right Flank. J.P. Morgan Chase & Co. is finding few friends on Capitol Hill. Already under attack from Democrats, the bank is now discovering its giant trading loss has stoked frustration among Republicans as its $2 billion-plus stumble undercuts arguments that GOP lawmakers have been making against Wall Street regulation. Compounding matters, Republicans haven't forgotten that J.P. Morgan gave a majority of its campaign donations to President Barack Obama and Democrats in the 2008 campaign.
  • Finra: It's Nasdaq's(NDAQ) Call on Covering Facebook(FB) Losses. Nasdaq OMX Group Inc. will make the final decisions on making up losses sustained by brokers and traders after glitches struck the initial public offering of Facebook Inc., according to a senior official with the agency tasked to review the matter. The Financial Industry Regulatory Authority, or Finra, may need to seek further information from firms affected by the problems with Nasdaq's systems, which led to some orders going unfilled.
  • Vornado(VNO), Looking to Exit Malls, Lists Three Properties for Sale. Vornado Realty Trust is following through on its pledge last month to sell many or all of its shopping malls, having hired brokerage Eastdil Secured to market for sale its stakes in three malls in and around New York City.
  • Large Investors Choose to Swim on Their Own. Some of the world's biggest investors are betting they can beat real-estate fund managers at their own game. Put off by high fees and disappointing performance of so-called pooled funds, major institutions such as Harvard University's endowment, Canada Pension Plan and Abu Dhabi Investment Authority are building in-house real-estate investment divisions to acquire property directly. They are making fewer real-estate investments through outside fund managers who pool contributions from dozens of investors.
  • China 2012 Growth May Be Under 7%, NDRC Researcher Says. China's full-year economic growth may be below 7% unless the government introduces more stimulus measures, citing Chen Dongqi, deputy head of the National Development and Reform Commission's macroeconomic research institute.
Dow Jones:
  • Former Greek PM Papademos: Risk of Greece Leaving Euro is Real. Greece's former prime minister Lucas Papademos Tuesday warned that Greeks have no choice but to stick with a painful austerity program dictated by its lenders or face an exit from the euro zone that would destitute the economy, send inflation soaring and generate new social strains. In his first interview since leaving office last week, Papademos told Dow Jones Newswires that dropping the single currency would have "catastrophic" economic consequences for Greece and profound and far-reaching implications for the rest of the euro zone. This is why some European states and institutions are considering contingency plans for any eventuality, he said, declining to provide details.
Business Insider:
Zero Hedge:

CNBC:

Reuters:
  • JPMorgan(JPM) exec seen in field as US money-laundering cop. A JPMorgan executive and former Treasury Department official is considered by industry sources to be a top candidate to replace the dismissed head of the department's anti-money laundering unit, at a time financial institutions face more demands from the fight against terrorism financing and drugs trafficking.
Financial Times:
  • Germany Rules Out Common Euro Bonds. Germany refused to share the debt burden of stressed eurozone peers on Tuesday, ignoring two of the most influential international economic bodies which offered support for proposals championed by Paris, Rome and Brussels ahead of a summit.
Telegraph:

China Daily:
  • China State Council Set to Approve Move to Narrow Gap Between Rich and Poor. A new income distribution framework is set for approval to redress the growing gap between rich and poor, government officials said.The framework comes at a time when the most affluent 10 percent of the population make 23times more than the poorest 10 percent.In 1988 it was seven times.The framework, eight years in the making, has been tabled for approval by the State Council and is likely to be introduced in the second half of this year.
21st Century Business Herald:
  • Industrial and Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. lent a combined 34b yuan in the first 20 days of May. Deposits at the four banks fell by 270b yuan during the period.
Evening Recommendations
Oppenheimer:
  • Rated (JAZZ) Outperform, target $66.
Jefferies:
  • Rated (DNDN) Underperform, target $5.
Night Trading
  • Asian equity indices are -1.50% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 198.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 154.5 -6.0 basis points.
  • FTSE-100 futures -1.25%.
  • S&P 500 futures -.53%.
  • NASDAQ 100 futures -.39%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ZLC)/-.20
  • (TOL)/.03
  • (HRL)/.41
  • (EV)/.48
  • (SNPS)/.55
  • (P)/-.18
  • (PVH)/1.26
  • (NTAP)/.63
  • (HPQ)/.91
  • (SMTC)/.31
  • (GCO)/.74
  • (AEO)/.20
  • (BIG)/.69
Economic Releases
10:00 am EST
  • The House Price Index for March is estimated to rise +.3% versus a +.3% gain in February.
  • The House Price Purchase Index QoQ for 1Q is estimated to rise +.1% versus a -.1% decline in February.
  • New Home Sales for April are estimated to rise to 335K versus 328K in March.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,650,000 barrels versus a +2,128,000 barrel gain the prior week. Distillate supplies are estimated to fall by -500,000 barrels versus a -969,000 barrel decline the prior week. Gasoline inventories are estimated to fall by -650,000 barrels versus a -2,797,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a +1.9% gain the prior week.

Upcoming Splits

  • (FMC) 2-for-1

Other Potential Market Movers

  • The Fed's Kocherlakota speaking, EU summit, Germany bond auction, China HSBC PMI, BoJ rate decision, 5-Yr T-Note auction, weekly MBA mortgage applications report, Citi Consumer Conference, Goldman Basic Materials Conference, Raymond James Construction Conference, Morgan Stanley Retail/Restaurant Conference, Wells Fargo Specialty Finance Symposium, Sterne Agee Tech Conference, Barclays TMT Conference, (TMO) analyst meeting, (STM) analyst day, (MET) investor day and the (NEM) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Tuesday, May 22, 2012

Stocks Reversing Lower into Final Hour on Falling Euro, Rising Global Growth Fears, Tech/Commodity Sector Weakness, More Shorting


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 21.41 -2.59%
  • ISE Sentiment Index 112.0 -5.08%
  • Total Put/Call 1.0 +8.7%
  • NYSE Arms 1.05 -6.56%
Credit Investor Angst:
  • North American Investment Grade CDS Index 117.40 -.41%
  • European Financial Sector CDS Index 280.55 -5.94%
  • Western Europe Sovereign Debt CDS Index 309.33 -2.20%
  • Emerging Market CDS Index 304.50 +1.0%
  • 2-Year Swap Spread 34.50 -.75 basis point
  • TED Spread 38.50 -1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -47.50 +3.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .08% +1 basis point
  • Yield Curve 148.0 +4 basis points
  • China Import Iron Ore Spot $131.10/Metric Tonne +.15%
  • Citi US Economic Surprise Index -25.50 -.2 point
  • 10-Year TIPS Spread 2.18 +1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a -1 open in Japan
  • DAX Futures: Indicating -46 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Retail/Biotech sector longs and index hedges
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long

Bear Radar


Style Underperformer:

  • Small-Cap Growth -.09%
Sector Underperformers:
  • 1) Coal -3.45% 2) Education -2.51% 3) Disk Drives -1.86%
Stocks Falling on Unusual Volume:
  • ABMD, CNSL, CREE, CYBX, FMCN, STX, MEOH, STRA, BTU, SHAW, ALB, SJT, DVA, WLT and EXPR
Stocks With Unusual Put Option Activity:
  • 1) CNX 2) YHOO 3) MOS 4) RL 5) BTU
Stocks With Most Negative News Mentions:
  • 1) DVA 2) CYBX 3) ABMD 4) ANR 5) MS
Charts:

Bull Radar


Style Outperformer:
  • Large-Cap Valute +.39%
Sector Outperformers:
  • 1) Banks +1.95% 2) Homebuilders +1.36% 3) Road & Rail +1.15%
Stocks Rising on Unusual Volume:
  • BNHN, ALXN, URBN, NDSN, AUXL, SVVC, PCYC, TSLA, DSW, RL and WSM
Stocks With Unusual Call Option Activity:
  • 1) IDIX 2) WLP 3) PCX 4) ALXN 5) UNH
Stocks With Most Positive News Mentions:
  • 1) IKNX 2) JEC 3) WRB 4) MDT 5) GRT
Charts:

Tuesday Watch


Evening Headlin
es
Bloomb
erg:
  • Merkel and Hollande Head for a Showdown on Debt at EU Summit. Germany and France, the leading economies in the 17-nation euro region, are headed for a showdown at the next European Union summit over their views on how to stem a debt crisis that threatens the survival of the single currency. German Chancellor Angela Merkel said she won’t shy away from disagreeing with French President Francois Hollande at the summit on May 23, the next major appointment of leaders seeking to allay concerns among investors that Greece may quit the euro, putting at risk Spain and Italy as well. Good cooperation “doesn’t exclude differing positions,” Merkel told reporters yesterday in Chicago during a meeting of the North Atlantic Treaty Organization. “These may very well arise in the context of the European discussions.” While Franco-German collaboration has been a cornerstone since the founding of the euro, Merkel and Hollande, France’s first socialist president in almost two decades, have gotten off to a rocky start in a relationship that needs to work to spur economic growth and prevent Greece from leaving the euro area.
  • Bank Debt Loses LTRO Boost as Greece Overwhelms: Credit Markets. The record rally in bank debt fueled by the ECB injection of $1.3 trillion into the region's financial system has evaporated as the worsening Greek crisis triggers deposit withdrawals and ratings downgrades. The Markit iTraxx Financial Index of credit default swaps on the senior debt of 25 European banks and insurers including Spain's Banco Santander SA and Italy's UniCredit SpA reached 308.39 on May 18, up from this year's low of 181.47 on March 20 and the highest since Dec. 19. "The real risk is not so much the departure of Greece, but contagion," said Roger Francis, an analyst at Mizuho International Plc in London. "There's not the same imminent fear of banks running out of cash, but big systemic fears about what a Greek exit would mean."
  • Obama Allies Shun Bain Attacks to Avoid Smearing Private Equity. President Barack Obama's campaign has set a target on Mitt Romney's tenure at the helm of Bain Capital LLC. What's missing are high profile surrogates from the Democratic Party and the business community who will hit that theme in interviews and appearances on political talk shows. In fact, some Obama backers are undermining a core argument the president is making against the presumed Republican Party nominee as they try to avoid criticizing the investment community. Newark, New Jersey Mayor Cory Booker yesterday called the private-equity debate "nauseating to the American public" and likened it to potential Republican attacks tying Obama to his former pastor, Reverend Jeremiah Wright Jr., who once urged blacks to sing "God damn American" instead of "God Bless America."
  • Hedge Funds Circle as Japan's Asset Bubble Grows. It’s limbo, Japanese-style: How low can bond yields go without triggering a meltdown? This question gains urgency as 10-year government yields disappear before the world’s eyes. At 0.83 percent, the lowest level since 2003, they hardly compensate investors for the risks inherent in buying IOUs from the most indebted nation. Public debt is more than twice the size of the $5.5 trillion economy. Worse, it’s still growing.
  • Prostate-Cancer Test Carries More Risk Than Benefit, U.S. Says. The PSA prostate-cancer test used by half of U.S. men older than 40 carries more risks than benefits and shouldn't be used to diagnose the disease, a U.S. panel said, reaffirming its earlier advice. Scientific studies suggest the number of deaths avoided by screening are "very small" compared with risks from testing or treatment that can include infections, incontinence, erectile dysfunction and death, the U.S. Preventive Services Task Force said in a medical journal today.
Wall Street Journal:
  • Provisioning for Spanish Bank Losses Is Insufficient, IIF Says. Spanish banks’ total loan losses could range between 218 billion and 260 billion euros, more than currently-expected provisioning, the Institute of International Finance predicted Monday. That suggests the government will have to step in to support “a significant number of banks, mainly the cajas,” the institute said, referring to local Spanish banks.
  • Top U.S. Money-Laundering Regulator Dismissed. The Treasury Department has dismissed the country's top anti-money-laundering regulator from his post, people familiar with the matter said, a rare move that the Obama administration isn't explaining.
  • Once Made in China: Jobs Trickle Back to U.S. Plants.
  • Rivals Go to Lunch on JPMorgan's(JPM) Losses. The trading blunders that have cost J.P. Morgan Chase & Co. at least $2 billion are shaping up as a boon for some of the bank's biggest rivals. A group of about a dozen banks, including Goldman Sachs Group Inc. and Bank of America Corp., have scored profits that collectively could total $500 million to $1 billion on trades that sometimes pit them directly against J.P. Morgan's Chief Investment Office, according to traders and people close to the matter.
  • Investors Pummel Facebook(FB).
  • Catholics Sue Over Health Mandate. The University of Notre Dame, the Archdiocese of New York and 41 other Roman Catholic institutions sued the Obama administration in federal court Monday, the latest push against a requirement in the health-care-overhaul law that employers cover contraception in workers' health plans.
  • Targeting John Roberts. The left tries to intimidate the High Court on ObamaCare.
Business Insider:
Zero Hedge:
CNBC:
  • Undercapitalized Banks Pose Biggest Risk to Europe. (video)
  • Secret Central Bank Aid Props Up Greek Banks. There has been no official announcement. No terms or conditions have been disclosed. But Greece’s banking system is being propped up by an estimated €100 billion or so of emergency liquidity provided by the country’s central bank — approved secretly by the European Central Bank in Frankfurt. If Greece were to leave the eurozone, the immediate cause might be an ECB decision to pull the plug.
  • Greece Needs to Accept Bailout Terms: South Korea. South Korea’s President Lee Myung-bak says Greece needs to accept the terms of a $130 billion international bailout agreed in March and there will be no disbursement of money from the International Monetary Fund (IMF), unless the country does so.
Reuters:
Telegraph:

Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 195.0 -4.5 basis points.
  • Asia Pacific Sovereign CDS Index 160.5 -.5 basis point.
  • FTSE-100 futures +.43%.
  • S&P 500 futures -.10%.
  • NASDAQ 100 futures -.06%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (WSM)/.32
  • (DSW)/.90
  • (AZO)/6.25
  • (CBRL)/.75
  • (MDT)/.98
  • (BBY)/.59
  • (RL)/.85
  • (ADI)/.51
  • (PETM)/.73
  • (DELL)/.46
  • (CPWR)/.14
  • (GES)/.26
  • (PSS)/.44
  • (JDAS)/.57
Economic Releases
10:00 am EST
  • The Richmond Fed Manufacturing Index for May is estimated to fall to 11.0 versus 14.0 in April.
  • Existing Home Sales for April are estimated to rise to 4.61M versus 4.48M in March.

Upcoming Splits

  • (FMC) 2-for-1

Other Potential Market Movers

  • The Fed's Lockhart speaking, weekly retail sales reports, 2-Yr T-Note auction, Barclays Tech/Media/Telecom Conference, Deutsche Bank Real Estate/Gaming/Lodging/Leisure Conference, Citi Consumer Conference, (WFC) investor day, (SGY) analyst day, (ALB) investor day and the (PRU) investor day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity 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 day.

Monday, May 21, 2012

Stocks Jumping into Final Hour on Euro Bounce, More Tech Sector Optimism, Short-Covering, Bargain-Hunting


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 22.58 -10.04%
  • ISE Sentiment Index 99.0 +3.13%
  • Total Put/Call .92 -32.35%
  • NYSE Arms 1.10 +41.38%
Credit Investor Angst:
  • North American Investment Grade CDS Index 120.87 -2.05%
  • European Financial Sector CDS Index 298.05 -3.36%
  • Western Europe Sovereign Debt CDS Index 316.20 +1.63%
  • Emerging Market CDS Index 303.55 -3.27%
  • 2-Year Swap Spread 35.25 -1.5 basis point
  • TED Spread 39.50 +.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -50.75 +1.75 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .07% -1 basis point
  • Yield Curve 144.0 +3 basis points
  • China Import Iron Ore Spot $130.90/Metric Tonne -.30%
  • Citi US Economic Surprise Index -25.30 -.2 point
  • 10-Year TIPS Spread 2.17 +4 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a +58 open in Japan
  • DAX Futures: Indicating +12 open in Germany
Portfolio:
  • Higher: On gains in my Biotech, Retail, Medical and Tech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite Eurozone debt angst, a "disappointing" (FB) debut, financial sector underperformance, rising energy prices and rising global growth fears. On the positive side, Coal, Oil Tanker, Oil Service, Computer, Disk Drive, HMO and Road & Rail shares are especially strong, rising more than +2.25%. Transport and Tech shares have traded well throughout the day. Copper is rising +.9%. Major Asian indices were mostly higher, led by a +.94% gain in South Korea. Despite more China stimulus speculation, Hong Kong fell another -.16% and is down -4.1% in 5 days(-10.7% in less than 3 weeks). Major European indices are mixed as a +.95% gain in Germany is being offset by a -.65% decline in Spain. Spain is now down -4.2% in 5 days and down -23.8% ytd, which remains a huge red flag for the broad market as the index is unable to even bounce. The Bloomberg European Bank/Financial Services Index is rising +1.1% today, but is still down -5.8% in 5 days(-23.9% in about 2 months).The Brazil sovereign cds is falling -2.9% to 150.96 bps and the European Investment Grade CDS Index is dropping -1.3% to 180.39 bps. On the negative side, Utility, Bank, Drug and Insurance shares are just slightly higher on the day. The financials have underperformed throughout the day. Oil is gaining +1.7%, Lumber is falling -.3% and the UBS-Bloomberg Ag Spot Index is gaining +.3%. The Spain sovereign cds is gaining +.84% to 560.0 bps. The UK sovereign cds is gaining +1.8% to 75.17 bps. The Ireland sovereign cds is gaining +2.1% to 721.87 bps(+14.7% in 5 days). The Portugal sovereign cds is rising +1.3% to 1,236.56 bps(+12.2% in 5 days). The Japan sovereign cds is gaining +1.3% to 110.92 bps. The US sovereign cds is jumping +4.5% to 46.50 bps(+12.9% 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 -4.0% 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 -28.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +356.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -21.3% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong despite today's mixed performance. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. While the weak post-ipo performance of (FB) is damaging to investor psychology, (JPM) concerns are likely much more important. (JPM) continues to trade very poorly amid rising worries about the risks the bank has taken on over the last few years. US stocks are bouncing after last week’s outsized losses, however the quality of the rally is lacking so far. There are few big-volume/gainers and the devastated commodity-related stocks are leading. The 10Y T-Note isn’t selling off at all and the euro can’t gain upside traction. However, tech stocks are trading well given (FB) weakness. As I speculated last week, it appears as though a portion of market-leader (AAPL)’s recent losses were directly related to the (FB) IPO. Long AAPL. While stocks were very oversold and may bounce further in the shot-term, there is still too much uncertainty on the horizon to conclude a durable low is in place, in my opinion. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. 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 mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, a "disappointing" (FB) debut, rising energy prices and less financial sector optimism.