Thursday, January 03, 2013

Bull Radar

Style Outperformer:
  • Small-Cap Value +.23%
Sector Outperformers:
  • 1) Alt Energy +2.89% 2) Coal +2.64% 3) Education +1.69%
Stocks Rising on Unusual Volume:
  • HRL, ROST, HLF, FSLR, PIR, HOTT and DECK
Stocks With Unusual Call Option Activity:
  • 1) VRSN 2) SPWR 3) TASR 4) ROST 5) STZ
Stocks With Most Positive News Mentions:
  • 1) DTV 2) ICE 3) PIR 4) CSCO 5) BONT
Charts:

Thursday Watch

Evening Headlines 
Bloomberg: 
  • Basel Becomes Babel as Conflicting Rules Undermine Safety. The first Basel agreement on global banking regulation, adopted in 1988, was 30 pages long and relied on simple arithmetic. The latest update, known as Basel III, runs to 509 pages and includes 78 calculus equations. The complexity is emblematic of what happened over the past four years as governments that injected $600 billion to rescue failing banks.
  • China Poised for 2013 Rebound as Debt Risks Rise for Xi. Incoming President Xi Jinping may find China’s investment-driven economic recovery in the Year of the Snake jeopardized by mounting risks in the finance industry. Gross domestic product is poised to expand 8.1 percent this year, up from 7.7 percent in 2012, according to the median estimate of economists surveyed last month by Bloomberg News. At the same time, an increase in lending fueled by trust companies and underground banks enhances the risk of loan defaults that would be “severely damaging” to the economy, Standard Chartered Plc says. The danger is that an economic rebound lulls policy makers into complacency, delaying market-driven changes needed to reduce dependence on investment for growth. “If China tries to sustain growth by adding debt and investing it inefficiently it will be like cotton candy: a short-term high with no lasting value,” said Loevinger, now an Asia analyst in Los Angeles at TCW Group Inc., which oversees about $135 billion. “The U.S. got into trouble because institutions like Fannie Mae (FNMA) and Freddie Mac were too big to fail and had a toxic mix of private shareholders and implicit government guarantees. China’s financial system is full of Freddies and Fannies.” Xi and his team are inheriting an economy more leveraged than the one President Hu Jintao took over in 2003. Government, corporate and consumer debt rose last year by 15 percentage points to an estimated 206 percent of GDP, Standard Chartered said in a November report. In March 2003 it stood at 150 percent. Borrowers are using some new loans to “plaster over non- performing credits” while so-called shadow banking is growing too fast, said economists led by Stephen Green. They estimated that a bad-loan ratio of 12 percent would erase the banking industry’s 7.5 trillion yuan ($1.2 trillion) in capital.
  • Paulson Named in ACA’s Revised Goldman Sachs(GS) CDO Suit. Hedge fund Paulson & Co. was named as a defendant in a proposed revised lawsuit by ACA Financial Guaranty Corp. (MANF) against Goldman Sachs Group Inc. (GS) over a collateralized debt obligation called Abacus. Paulson and Goldman Sachs conspired to induce ACA to provide financial guaranty insurance for the Abacus deal, which was “doomed to fail,” the firm said in papers filed today in New York State Supreme Court in Manhattan. ACA, which sued Goldman Sachs in 2011, is seeking court permission to file a revised complaint adding Paulson as a defendant. 
Wall Street Journal: 
  • Deductions Limits Will Affect Many. One of the biggest tax increases in the fiscal-cliff bill is also one of the least understood: a set of limits on tax deductions and other breaks that will hit far more households than the bill's rate increases for top earners. The bill that cleared Congress Tuesday boosts the tax rate for single filers making more than $400,000 and married couples filing jointly making more than $450,000, or roughly the top 1% of filers. But provisions that reduce the value of personal exemptions as well as most itemized deductions, including those for mortgage interest and state income-tax payments, will affect about twice as many people since they carry a lower income threshold—$250,000 for singles and $300,000 for married couples. Those new limits drew complaints from some groups that benefit from deductions, particularly charities that depend on tax-deductible donations. They worry that new curbs on deductions, coupled with other taxes on higher-income Americans, will put a damper on giving. 
  • Cliff Fix Hits Small Business. Many Small Entities or Firms May Face Higher Taxes This Year After the Deal. It's likely to be a year of painful decision-making for small-business owners like Tom Secor of Norwalk, Ohio, one of hundreds of thousands of Americans who could face a higher tax bill after Washington's last-minute deal to avoid the fiscal cliff.
  • Electricity Use on Wane in the U.S. Americans are using more gadgets, televisions and air conditioners than ever before. But, oddly, their electricity use is barely growing, posing a daunting challenge for the nation's utilities. The Energy Information Administration is projecting that electricity use in the U.S. will rise an average of just 0.6% a year for industrial users and 0.7% for homes through 2040. That's a far cry from the middle decades of the past century, when utilities could rely on electricity-consumption growth rates of more than 8% a year.
  • Risk Seen in Some Mortgage Bonds. After a surge in bonds backed by mortgages on commercial properties, some investors are finding cracks in the foundations. Investors piled into these bonds, which are made up of pools of loans linked to properties such as shopping malls and hotels, because of the relatively high yields they offered. But that demand has sent prices soaring, and yields tumbling to record lows. As well, some investors remain worried that defaults on these loans remain at historically high rates.
  • Weak Demand Turns Tables on Potash Firms. The world's biggest potash producers bet for years on ever-growing demand for fertilizer. Now they find themselves at the mercy of small farmers like Virender Kumar Rai. On his patch of land in eastern India, Mr. Kumar Rai is switching from potash to cheaper crop nutrients, like urea, for his rice, wheat and vegetable crops. "Urea suits me fine now," he says. 
  • Islamist Split in Egypt Buoys Radical Wing. Ahead of Parliamentary Vote, Ultraconservative Faction Breaks Away From Popular Salafi Party to Push for Shariah Law. A radical faction within Egypt's most conservative Islamist party is breaking away, threatening to pull the nation's politics further rightward ahead of a vote to elect a new Parliament. The split is also fracturing the Islamist Nour Party, which has allied with President Mohammed Morsi's Muslim Brotherhood but is more religiously conservative. The next polls are critical because the new Parliament will draft laws fleshing out Egypt's new Islamist-tinged constitution.
  • It Was a Blue Christmas for Retailers. We have all heard of Black Friday. Last week, though, retailers had an awfully dark Wednesday—and not because Dec. 26 is also one of the busiest shopping days of the year. A report from SpendingPulse, a service of MasterCard Advisors, said holiday spending in the two months up to Christmas rose by just 0.7% from a year earlier—a deep disappointment
Fox News:
  • Pressure builds to nix gift of tanks, F-16s to Egypt. Later this month, the new government in Egypt is scheduled to begin taking delivery of 10 F-16 fighter jets and 200 Abrams tanks – courtesy of U.S. taxpayers. The $213 million deal is part of a foreign aid package signed when American ally Hosni Mubarak was president, but a growing chorus of critics say the Obama administration should pull the plug. They cite Egypt’s new Muslim Brotherhood government’s mixed signals to the U.S. and Israel, as well as America’s fiscal problems, as reasons for rescinding the deal.
CNBC:
  • More Steps Needed to Save US Credit Rating: Moody's. The United States must do more than the recently passed "fiscal cliff" measures if the country is to rescue its Aaa debt rating from its current negative outlook, rating agency Moody's Investors Service said on Wednesday.
  • Despite Cliff Deal: 'Nothing Really Has Been Fixed'. An emergency deal reached after weeks of rancorous negotiations will keep the U.S. from driving off the "fiscal cliff," but higher taxes and continued political bickering in Washington threaten to shake the fragile economy well into 2013.
  • Watch Out, Asia. Inflation Is Coming. Inflation in Asia may be under control now, but prices across the region could soon start to creep higher, with India and Southeast Asia the most vulnerable, warns independent economist Andy Xie.
Zero Hedge: 
Business Insider:
NY Times: 
  • Al Jazeera Acquires Al Gore's Current TV. Al Jazeera on Wednesday completed a deal to take over Current TV, the low-rated cable channel that was founded by Al Gore and his business partners seven years ago. Current will provide the pan-Arab news giant with something it has sought for years: a pathway into American living rooms. Current is available in about 60 million of the 100 million homes in the United States with cable or satellite service.
CNN:
  • Smaller paychecks coming - bosses say, don't blame us. Everyone's paycheck is about to take a hit, and it's not the boss' fault. But some business owners say it's a tough talk to have. The rate of workers' payroll taxes, which fund Social Security, has been 4.2% for the past two years. As of Jan. 1, it's back to 6.2%, on the first $113,700 in wages.
USA Today: 
Reuters:
  • CEOs pan fiscal cliff deal, vow to continue debt fight. U.S. executives largely panned the congressional deal to steer America away from the "fiscal cliff," saying Washington wasted an opportunity to address the nation's long-term debt, but said they would continue to agitate for a better budget plan.
Telegraph: 
  • Fiscal cliff: US must do more, says IMF. The International Monetary Fund has said that US actions to avoid the fiscal cliff did not go far enough to address the country's long-term fiscal deficit and debt problems.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 100.5 -12.75 basis points.
  • Asia Pacific Sovereign CDS Index 80.5 -5.25 basis points.
  • FTSE-100 futures n/a.
  • S&P 500 futures -.29%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (WOR)/.41
  • (PRGS)/.34
  • (FDO)/.75
  • (SUN)/.71
Economic Releases
8:15 am EST
  • The ADP Employment Change for December is estimated to rise to 140K versus 118K in November.
8:30 am EST  
  • Initial Jobless are estimated to rise to 360K versus 350K the prior week.
  • Continuing Claims are estimated to rise to 3210K versus 3206K prior.
 2:00 pm EST
  •  Fed minutes from 12/12 meeting.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly MBA mortgage applications report, Challenger Job Cuts report for December, German Unemployment report, China HSBC Services PMI report, RBC Consumer Outlook Index for January, ISM New York for for December and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial 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.

Wednesday, January 02, 2013

Stocks Surging into Final Hour on Fiscal Cliff Optimism, Less Eurozone Debt Angst, Short-Covering, Tech/Financial Sector Strength

Broad Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: About Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 15.20 -15.65%
  • ISE Sentiment Index 129.0 +4.9%
  • Total Put/Call .95 -6.86%
  • NYSE Arms 1.15 +428.90%
Credit Investor Angst:
  • North American Investment Grade CDS Index 85.79 -9.22%
  • European Financial Sector CDS Index 126.67 -10.9%
  • Western Europe Sovereign Debt CDS Index 104.99 -5.7%
  • Emerging Market CDS Index 195.12 -6.11%
  • 2-Year Swap Spread 13.0 -.75 bp
  • TED Spread 25.0 -1.5 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -19.5 +1.25 bps
Economic Gauges:
  • 3-Month T-Bill Yield .06% +2 bps
  • Yield Curve 158.0 +7 bps
  • China Import Iron Ore Spot $144.90/Metric Tonne unch.
  • Citi US Economic Surprise Index 33.1 -6.8 points
  • 10-Year TIPS Spread 2.48 +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +430 open in Japan
  • DAX Futures: Indicating -1 open in Germany
Portfolio:
  • Higher: On gains in my tech, biotech and medical sector longs
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:
  • Bipartisan House Backs Tax Deal Vote as Next Fight Looms. The fiscal bill passed by Congress solves an immediate dilemma, averting income-tax increases for most Americans while taxing top-earners more, yet leaves unanswered a longer-term question of taming the federal debt. Congress must act as early as mid-February to prevent a default and the dispute may reprise a similar 2011 episode that led to a downgrade of the U.S. credit rating. “Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble,” House Speaker John Boehner said in a statement after the vote.
  • Euro-Area December Manufacturing Shrinks More Than Estimated. Euro-area manufacturing output contracted more than initially estimated in December, adding to signs a recession in the currency bloc may extend into this year as leaders struggle to tackle the sovereign-debt crisis. A gauge of manufacturing in the 17-nation euro area fell to 46.1 from 46.2 in November, London-based Markit Economics said today. That’s below an initial estimate of 46.3 on Dec. 14. A reading below 50 indicates contraction. The gauge has been below 50 for 17 months. The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year. The European Central Bank forecasts contractions of 0.5 percent and 0.3 percent in 2012 and 2013. “The euro-zone manufacturing sector remained entrenched in a steep downturn at the end of the year,” Chris Williamson, chief economist at Markit, said in the report. “The region’s recession therefore looks likely to have deepened, possibly quite significantly, in the final quarter.”  
  • Manufacturing in U.S. Expands After Reaching Three-Year Low. The Institute for Supply Management’s manufacturing index climbed to 50.7 last month from November’s 49.5, which was the weakest since July 2009, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between expansion and contraction. The median forecast of economists surveyed by Bloomberg called for a rise to 50.5. 
  • Gold Reaches Two-Week High as Commodities Gain on Budget. Gold futures for February delivery rose 0.7 percent to $1,688.10 an ounce at 9:41 a.m. on the Comex in New York. Earlier, it reached $1,692.60, the highest for a most-active contract since Dec. 18, after advancing 7 percent last year. 
Wall Street Journal: 
  • Portuguese Austerity in Doubt as President Moves Against Budget. A political rift was opened in Portugal on Wednesday after the country's president sent the 2013 budget to its highest court for review, an unusual move that highlights deepening opposition to a two-year austerity drive. President Anibal Cavaco Silva, who is the head of state and belongs to the same right-of-center political party as Prime Minister Pedro Passos Coelho, signed the budget bill into law on Monday, but expressed reservations the next day. In a late televised address to the nation, he expressed doubts about the budget's "distribution of sacrifices," while calling for an end to the "recession spiral" the country is undergoing.
Fox News: 
  • Construction spending posts first decline in eight months. Construction spending dropped 0.3 percent to an annual rate of $866 billion, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected a 0.6 percent gain. Private spending on nonresidential projects slipped by 0.7 percent, the fourth decline in six months.
CNBC: 
  • Why Many Investors Are Selling Today's Big Rally. Many investors were selling into the monster stock rally Wednesday on the notion that the "fiscal cliff" deal hastily hatched New Year's Day did not solve any long-term issues and set the country on the path of several more brinkmanship moments in Congress.
Business Insider:
CNSnews.com:
  • Senate Voted on ‘Fiscal Cliff’ Bill 3 Minutes After Receiving It. The U.S. Senate voted 89-8 to approve legislation to avoid the fiscal cliff despite having only 3 minutes to read the 154-page bill and budget score. Multiple Senate sources have confirmed to CNSNews.com that senators received the bill at approximately 1:36 AM on Jan. 1, 2013 – a mere three minutes before they voted to approve it at 1:39 AM.
Reuters:
  • U.N. lifts Syria death toll to "truly shocking" 60,000. More than 60,000 people have died in Syria's uprising and civil war, the United Nations said on Wednesday, dramatically raising the death toll in a struggle that shows no sign of ending. In the latest violence, dozens were killed in a rebellious Damascus suburb when a government air strike turned a petrol station into an inferno, incinerating drivers who had rushed there for a rare chance to fill their tanks, activists said.
  • Food prices push German inflation above ECB ceiling. Germany's annual inflation rate rose for the first time in fourth months in December on increases in food and package holiday prices, breaching the European Central Bank's target threshold for the broader euro zone of 2 percent. Compared to the prior year period, prices increased 2.1 percent in the final month of 2012, preliminary data from the Federal Statistics Office showed. On the month, consumer prices rose 0.9 percent. Economists surveyed by Reuters had been expecting more modest rises of 1.9 percent year-on-year and 0.7 percent on a monthly basis.
  • Car slump in France, Spain and Italy spells gloomy 2013. Car sales in France, Spain and Italy in 2012 fell to the lowest levels in years, with December registration data underscoring the challenges facing the broader European economy. Automakers are facing a sustained slump in the European car market as the euro zone debt crisis and government austerity measures sap consumer demand. "The new car market continues to decline - a trait which we anticipate will continue through the course of 2013," Credit Suisse analyst David Arnold said on Wednesday, adding European auto sales were unlikely to see growth in 2013. Europe's stagnating auto market will have knock-on effects for other economic players including steel producers, Nomura analyst Matthew Kates said in a note, citing forecasts by consulting firm AutoAnalysis. Italy's car sales, down 22.5 percent in December, slumped 19.9 percent for the full year to 1.4 million units, their lowest levels since 1979. "The car market is suffering from an overdose of taxes aimed at hitting, if not criminalising, the acquisition, ownership and use of autos," said Filippo Pavan Bernacchi, the president of Italy's car dealers' trade group Federauto. French car registrations fell 15 percent in December, leaving the full year down 14 percent to 1.90 million vehicles - the lowest since 1997, French industry group CCFA said. He said he expected Italian car sales in 2013 to be close to 1.33 million units. Spain's monthly sales shrank 23 percent, after a 20 percent fall in November. Its full-year total of 699,589 cars, down 13 percent, was the lowest since industry association Anfac began keeping records in 1989
  • Dollar slips vs. higher-yielders but rebounds vs. euro. The dollar fell against higher-yielding currencies such as the Australian dollar on Wednesday after U.S. lawmakers approved a last-minute deal to avert huge tax rises and spending cuts, spurring demand for riskier investments. But the U.S. currency staged a recovery against the euro in late morning trade as some traders booked profits after driving the common currency to a two-week high just below $1.33.
Financial Times:
  • Beijing land prices soar amid criticism. Land prices have soared at recent auctions in Beijing in a sign that the Chinese property market is heating up again despite a long campaign by the government to cool it down. A large parcel of land in Tongzhou, a Beijing suburb, sold this week for Rmb1bn ($160m), 491 per cent more than the starting price – the highest premium paid at an auction in the capital in two years.
The Australian:
  • Rio's(RIO) Walsh warns iron ore price spike won't last. THE current spike in iron ore prices is likely to be temporary, Rio Tinto iron ore chief executive Sam Walsh says, with the company set to stick to its plans to aggressively target cost reductions despite the improving market. In an exclusive interview with The Australian, Mr Walsh attributed the recent rise in iron ore prices to short-term factors such as restocking by steel mills and traders, and the looming cyclone season in the iron ore-rich Pilbara region of Western Australia.

Bear Radar

Style Underperformer:
  • Mid-Cap Growth +1.34%
Sector Underperformers:
  • 1) Coal -3.80% 2) Retail +.19% 3) HMOs +.28%
Stocks Falling on Unusual Volume:
  • ABT, ASNA, GOL, LULU, TD, NTLS, NIHD, ALJ, UPL, DOLE, WPI, MR, TLYS, JWN, EHTH, CHRW, EQT, FL, EMC, PANW, DVA, TGT, AN, CLH, LUFK, COG, DECK and VSI
Stocks With Unusual Put Option Activity:
  • 1) PHM 2) HFC 3) MGM 4) RL 5) F
Stocks With Most Negative News Mentions:
  • 1) ROST 2) SKUL 3) BKS 4) NTLS 5) SPW
Charts:

Bull Radar

Style Outperformer:
  • Small-Cap Growth +2.27%
Sector Outperformers:
  • 1) Gaming +5.3% 2) Steel +4.49% 3) Alt Energy +3.65%
Stocks Rising on Unusual Volume:
  • IOC, ZIP, KEP, BC, LVS, ELLI, MCP, YELP, POL, X, FSL, MET, CMC, CAVM, ALXN, PHK, HPQ, WYNN, TEX, BC, MAR and CAR
Stocks With Unusual Call Option Activity:
  • 1) A 2) CROX 3) JBL 4) VMED 5) HES
Stocks With Most Positive News Mentions:
  • 1) HAIN 2) ZIP 3) CNH 4) DUF 5) SBAC
Charts: