Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 99.0 -29.9%
- Total Put/Call .72 -6.49%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.10 +1.25%
- European Financial Sector CDS Index 127.57 +.14%
- Western Europe Sovereign Debt CDS Index 97.93 -1.91%
- Emerging Market CDS Index 216.03 +1.16%
- 2-Year Swap Spread 13.75 -.25 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -17.0 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- China Import Iron Ore Spot $154.90/Metric Tonne -2.09%
- Citi US Economic Surprise Index 28.70 -17.8 points
- 10-Year TIPS Spread 2.51 -2 bps
Overseas Futures:
- Nikkei Futures: Indicating +129 open in Japan
- DAX Futures: Indicating +1 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/retail sector longs
- Disclosed Trades: Added to my (IWM), (QQQ) hedges, added to my (EEM) short
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- European Stocks Post Weekly Drop on Valuation, China. European
stocks fell in the second week of 2013 amid the highest valuation in 11
quarters for the benchmark Stoxx Europe 600 Index and concern that
quickening inflation in China will limit the scope for economic stimulus.
- U.K. Economy Shrank 0.3% in Fourth Quarter, Niesr Estimates. Britain’s economy probably shrank in the fourth quarter, tipping it closer to a triple-dip recession, according to an estimate from the National Institute of Economic and Social Research. Gross domestic product fell 0.3 percent in the period after rising 0.1 percent in the three months through November, the London-based institute, whose clients include the Bank of
England and the U.K. Treasury, said in a statement today.
- Fed’s Plosser Says Stimulus May Backfire, Fuel Inflation.
Federal Reserve Bank of Philadelphia President Charles Plosser said the
central bank’s record stimulus risks a surge in inflation and may
impair efforts by households to repair their finances. “Attempts to increase economic ‘stimulus’ may not help speed up the process and may actually prolong it,” Plosser said in the text of a speech today in Somerset, New Jersey.
- Trade Gap in U.S. Widens. The
gap swelled 15.8 percent to $48.7 billion, the largest since April,
Commerce Department data showed today in Washington. The shortfall
exceeded all projections in a Bloomberg survey of economists.
Wall Street Journal:
- SAC Is Bracing for Big Exodus of Funds.
Hedge-fund group SAC Capital Advisors has told employees and business
partners it is bracing for client withdrawals of at least $1 billion
this year—nearly 17% of the money it manages for outside investors—amid
intense regulatory scrutiny of alleged insider trading, people briefed
on the conversations said.
- Fed’s Plosser: Platinum Coin Not Worth Risk to Credibility.
The “mint the coin” gang doesn’t have a friend in Philadelphia Fed
chief Charles Plosser.
The currency in question is the so called “platinum coin” some say the
Treasury could create in a bid to do an end run around hitting the debt
ceiling.
CNBC:
- Why Stock Market Is 'Going to Hit a Brick Wall'. If mom-and-pop investors are always the last ones to the stock party, then it might be time to call a cab.
Market behavior in recent weeks suggest that after years of running
from equities, the retail crowd is coming back in a big way.
Business Insider:
RTT News:
- China's 2012 Auto Sales Miss Expectations. China's automobile sales missed official estimate in 2012 due to
anti-congestion measures adopted by the government and low imports from Japan on territorial dispute. Auto sales grew 4.3 percent in 2012, which was much below the official estimate of 8 percent
growth, data from the China Association of Automobile Manufacturers
showed Friday.
NY Post:
- Atlantic City casinos were bad bet for hedge funders. Turns out, the house doesn’t always win. Hedge-fund high rollers who bet big on a comeback for Atlantic City’s casinos are watching their gambling profits dwindle. The
city’s casino industry suffered its sixth straight decline last year,
with winnings down 8 percent to $3.05 billion, the New Jersey Division
of Gaming Enforcement said in its latest annual report, released
yesterday. Even before Sandy laid waste to the city’s famed
boardwalk and emptied its casinos, the gaming industry was down 4.8
percent through September, the regulator said. The numbers
suggest the odds are increasingly stacked against deep-pocketed backers
who play a key role in reviving the city’s fortunes.
- Bad Insta karma. Nearly 8 million users bail.Facebook’s(FB) Instagram continues to slide after an Internet uproar last
month over policy changes to the photo-sharing service, new data show. Instagram
has shed nearly half its daily active users — the highest frequency
group — since the fiasco over its terms of use, according to AppStats.
Its figures show that Instagram’s active daily users dropped to 8.42
million this week, from 16.35 million on Dec. 17, the day the
controversial news broke.
Reuters:
- US Fed official warns about slipping into currency wars. A top U.S. Federal
Reserve official waded into the sticky debate over global
currency wars on Friday, warning that such beggar-thy-neighbor
monetary policies would only hurt world trade and the economies
that were involved.
MF:
- Italy May Need to Pass EU 7b Austerity Measures in Spring. A new
austerity package worth as much as EU 7b in the spring is "more than
likely," citing government officials. Without the measures, Italy risks
not meeting its structural deficit target. Tax revenue is less than
expected, Finance undersecretary Gianfranco Polillo said on La7
yesterday.
Xinhua:
- China sends fighters to counter Japanese aircraft. China's Ministry of National Defense on Friday
denounced Japanese military aircraft disrupting the routine patrols of
Chinese administrative aircraft. At a press conference, an official
with the ministry confirmed that
China sent two J-10 fighters to the East China Sea after a Y-8 aircraft
was closely followed by two Japanese F-15 fighters as it patrolled the
southwest airspace of the East China Sea oil platform on Thursday. The
two J-10 fighters were sent to monitor the Japanese fighter jets
tailing the Y-8 as well as another Japanese reconnaissance plane spotted
in the same airspace, the official said. Furthermore, the official said Japanese military aircraft have been
increasingly active in closely scouting Chinese aircraft. The activity
zone of Japanese military aircraft has also expanded recently, which is
the root cause of security disputes concerning territorial waters and
airspace between the two countries. The Chinese military will be on high alert and China will resolutely
protect the security of its air defense force and uphold its legitimate
rights, the official said.
Style Underperformer:
Sector Underperformers:
- 1) Coal -3.70% 2) Steel -1.95% 3) Banks -1.30%
Stocks Falling on Unusual Volume:
- TGA, CNSL, TRST, PZE, TIVO, CHU, AVAV, CIEN, CCO, FNSR, KBR, SSRI, SNX, FARO, ARO, SVEP, CBD, RUE, ELN, WPI, WSO, PRGO, INCY, BBL, CNA and BA
Stocks With Unusual Put Option Activity:
- 1) GT 2) SWY 3) GGC 4) TEX 5) CTSH
Stocks With Most Negative News Mentions:
- 1) CENX 2) JCP 3) CNA 4) BA 5) DELL
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Airlines +.95% 2) Computer Services +.86% 3) Hospitals +.38%
Stocks Rising on Unusual Volume:
- INFY, VELT, DK, BBY, SPLK, FIO and CTSH
Stocks With Unusual Call Option Activity:
- 1) GGC 2) AGN 3) NRG 4) EA 5) MNST
Stocks With Most Positive News Mentions:
- 1) PM 2) JCI 3) BBY 4) LMT 5) HPQ
Charts:
Evening Headlines
Bloomberg:
- Bondholders in Crosshairs as Merkel Travels to Cyprus. Bondholders
are in the crosshairs as
conservative European leaders gather in Cyprus amid talks over a
bailout that may be as big as the nation’s entire economy. German
Chancellor Angela Merkel said this week Cyprus won’t get “special”
treatment as it negotiates the rescue it requested in June. She,
Ireland’s Enda Kenny and other leaders of the European People’s Party
descend on the city of Limassol to discuss the next European Union
budget as they back Nicos Anastasiades, head of the DISY opposition, as
successor to Communist President Demetris Christofias in February
elections. Aid for the third-smallest euro nation will test policy
makers’ commitments to hold the 17-member currency bloc together and
avoid more sovereign-debt writedowns after they called Greece’s
restructuring a one-off. The workarounds may put most
of the burden on bank bondholders and possibly depositors.
- Cyprus Cut Three Steps to Caa3 by Moody’s on Bank-Bailout Costs. Cyprus’s credit rating was cut three
steps to Caa3 by Moody’s Investors Service, citing the
government’s projected increased debt load from the need to
recapitalize its banking system. Nonperforming loans at the nation’s three largest banks
rose to 26 percent in September from 19 percent in March, New
York-based Moody’s said today in a statement. Recapitalizing
those institutions may cost of about 10 billion euros ($13.3
billion), Moody’s said. “As a result of the increased debt burden, we
think
there’s a higher likelihood that the Cypriot government may default
outright or press for a distressed exchange,” Sarah Carlson, a senior
credit officer at Moody’s in London, said in a
telephone interview. “It’s important to note that our base-case
scenario does not assume that this will happen in 2013.”
Cyprus’s debt to gross-domestic-product ratio may rise to
150 percent this year, Moody’s said.
- Berlusconi Denies Responsibility for Italy Crisis in TV Showdown. Former Italian Prime Minister Silvio Berlusconi, the country’s longest-serving elected head of
government, refused to accept responsibility for the deepening
recession in a televised debate last night with a long-time
critic.
- China’s Inflation Accelerates as Chill Boosts Food Prices. China’s
inflation accelerated more
than forecast to a seven-month high as the nation’s coldest
winter in 28 years pushed up vegetable prices, a pickup that may limit
room for easing to support an economic recovery. The consumer price
index rose 2.5 percent in December from a year earlier, the National
Bureau of Statistics said today in Beijing. That compares with the 2.3
percent median estimate in a
Bloomberg News survey of 42 economists and a 2 percent gain in
November.
- China Data Suspected Says 75-Year-Old Theory: Cutting Research. A
mathematical tool devised by an
American physicist in the 1930s underscores doubts about the
quality and reliability of Chinese economic data, according to
research by Australia & New Zealand Banking Group Ltd. (ANZ) The
results are based on “Benford’s Law,” which holds that in any series of
numbers, certain patterns will be found only if the statistics are
naturally generated. The rule, created by former General Electric
Co. (GE) engineer Frank Benford, suggests patterns for the first and
second digits in a numeric series and can be used to detect phony data,
Li-Gang Liu, ANZ’s
chief economist for Greater China, and colleague Louis Lam said
in a Jan. 8 report. Benford’s work has already been adapted to show Greece
should have been suspected of manipulating its data before the
European debt crisis and that now-jailed financier Bernard Madoff was overstating investment returns.
- China’s Stocks Fall After Inflation Data, Paring Weekly Gains. Chinese
stocks fall, paring a sixth week of gains for the benchmark index, as a
government report showing inflation accelerating more than forecast
overshadowed
optimism an economic recovery will bolster earnings.
Citic Securities Co., the nation’s biggest-listed
brokerage, and Soochow Securities Co. dropped more than 1
percent after the People’s Daily reported that regulators warned
the two brokerages for failing to make timely disclosures.
- Gross Raises Holdings of Treasuries to Highest Level Since July. Bill
Gross raised the percentage of Treasuries held in his flagship fund to
26 percent in December, the highest level since July, while warning of
the inflationary risks of stimulus programs such as quantitative easing.
The world’s biggest manager of bond funds increased the proportion of
U.S. government and Treasury debt in Pacific Investment Management Co.’s
$285 billion Total Return Fund (PTTRX) from 23 percent of assets in
November, according to a report on the company’s website. Mortgages
remained his largest holding,
though the percentage was reduced from 44 percent to 42 percent,
the least since October 2011.
- AmEx(AXP) Cuts Jobs as Digital Age Transforms Travel Business. American
Express Co. will eliminate 5,400 jobs this year, mostly in
travel services, as consumers and businesses rely more on
digital technology for bookings. The lender posted a 47 percent drop in
fourth-quarter profit and recorded after-tax charges totaling $594
million, including costs tied to severance and changes in how the firm
estimates future redemptions of credit-card rewards, New York- based AmEx said yesterday in a statement. “Travel has gone through a great deal of change,” Chief Executive Officer
Kenneth I. Chenault said in a conference call with analysts. The
economics of corporate travel has “changed more dramatically over the
years than any part of the business.”
- Pentagon Authorizes Steps Such as Freezing Civilian Hires. The Pentagon has authorized senior
managers to freeze civilian hiring, curtail travel and training,
dismiss temporary workers, review contracts and cancel some
weapons maintenance because of uncertainty over the budget. “We have no idea what the hell’s going to happen,”
Defense Secretary Leon Panetta said today at the Pentagon, in
explaining the need to begin cost-cutting measures. “All told,
this uncertainty, if left unresolved by the Congress, will
seriously harm our military readiness.”
Wall Street Journal:
- Wads of Cash Squeeze Bank Margins. Inability to Find Credit-Worthy Borrowers Is Squeezing Lenders’ Margins. U.S. banks are struggling with a problem most people would love to have: too much cash. But the flood of deposits into U.S. financial firms, at a time when
many lenders are having difficulty making new loans, spells trouble for
the industry as banks prepare to post fourth-quarter numbers.
Deposits reached a record $10.6 trillion at the end of 2012,
according to Market Rates Insight Inc., a San Anselmo, Calif., firm that
tracks deposit data. Meanwhile, the share of each deposit dollar that
banks lend out hit a postfinancial-crisis low in the third quarter,
according to data tracker SNL Financial of Charlottesville, Va. Extra
cash can help cushion banks in an economic downturn, but it
also helps to explain why banks’ net interest margin—the sum they
collect by pocketing the difference between the interest they pay to
depositors and the rate they charge borrowers—has fallen sharply.
- Rivkin and Casey: The Myth of Government Default. Three false arguments, pushed hard by the Obama administration and
accepted on faith by the media and much of the political establishment,
must be laid to rest if the American people are to understand the issues
at stake in the federal "debt ceiling" debate. The first is that Congress's failure to
raise the debt ceiling—the amount of money the federal government is
authorized to borrow at any given time—will cause a default on the
national debt. The second is that federal entitlement programs are
constitutionally protected from spending cuts. The third is that the
president can raise the debt ceiling on his own authority.
MarketWatch.com:
- PC sales fall 6.4% in Q4, worse than expected. Unit
sales of PCs slid 6.4% in the fourth quarter compared to the same
period last year, according to data released by IDC late Thursday. This
was worse than the 4.4% that was predicted earlier by the market
research firm -- and notable in that the quarter included the retail
launch of the Windows 8 operating system from Microsoft Corp. Calling
the PC market "sluggish," IDC said in its report that PC sales
"continued to take a back seat to competing devices and sustained
economic woes." In terms of global shipments, Hewlett-Packard HPQ
retained the number one slot with 16.7% market share for the quarter,
followed by Lenovo at 15.7% and Dell DELL at 10.6%.
- Videogame retail sales fall 26% in December. Sales of videogame software at U.S. retailers plunged by 26% in the
month of December compared to the same period last year, according to
data from NPD Group released late Thursday. Hardware sales slid by 22%, despite the presence of the new Wii U console from Nintendo.
CNBC:
Zero Hedge:
Business Insider:
Washington Post:
- White House considers funding for police in schools after Newtown. The
Obama administration is considering a $50 million plan to fund hundreds
of police officers in public schools, a leading Democratic senator
said, part of a broad gun violence agenda that is likely to include a
ban on high-capacity ammunition clips and universal background checks.
The school safety initiative would make federal dollars available to
schools that want to hire police officers and install surveillance
equipment, although it is not nearly as far-ranging as the National
Rifle Association’s proposal for armed guards in every U.S. school.
- Jack Lew had major role at Citigroup when it nearly imploded.
Treasury secretary nominee Jack Lew has spent most of his career in
government, but during the financial crisis, he was embedded inside one
of the country’s biggest banks as it nearly imploded. From 2006 to
2008, he worked at Citigroup in two major roles, a notable line in his
résumé given that as Treasury secretary, he would be charged with
implementing new rules regulating Wall Street.
CNN:
- Consumer groups criticize new mortgage rules. New rules from the Consumer Financial Protection Bureau aim to make
mortgages safer for borrowers, but consumer groups argue that the rules offer
more protection for lenders than benefits for borrowers.
- Middle class tax breaks on the line. Watch out, middle class Americans. President Obama wants to tie spending cuts to
tax revenue hikes in the debt ceiling talks, but that could mean trouble
for the middle class taxpayers he has pledged to protect.
"They'll have to go down to where the real money is, which is the middle
class," said Brian Gardner, Washington policy analyst with Keefe,
Bruyette & Woods, an investment bank. "Politically, that would be
very tough."
Reuters:
- Michigan governor wants review team to assess Detroit cash flow. Whether or not the state of Michigan
takes over Detroit's finances could depend on recent action by
the city council to approve contracts tied to city's
restructuring and oust the corporation's counsel.
- U.S. Fed hawks worry about threat of inflation. Two top Federal Reserve policymakers expressed discomfort on Thursday with the U.S. central bank's easy monetary policy, in comments
suggesting Fed Chairman Ben Bernanke may face more dissent this
year.
- U.S. stock mutual funds gain $7.5 bln, most since 2001 -Lipper.
- U.S. officials to launch review of Boeing's Dreamliner - source. U.S. transportation officials will hold a
press conference on Friday to discuss issues related to recent
electrical problems on Boeing Co's new 787 Dreamliner,
according to a person familiar with the matter. The source, who declined to be identified because the
information is not public, declined to provide further details. The U.S. Federal Aviation Administration will announce a
review into the jet's power system at the Friday press
conference, according to Bloomberg News.
- Japan November current account swings into hefty deficit.
Japan's current
account swung to a much bigger than expected deficit in November after
the nation's trade gap hit a 10-month high, adding to a string of poor
data and firming up the case for more stimulus to help the stuttering
economy. The 222.4 billion yen ($2.52 billion) deficit reported by the
Finance Ministry on Friday marked the first shortfall in 10 months and
far exceeded economists' median forecast of 3.5 billion gap. "The argument that Japan can rely on a current
account surplus and savings in the household sector to fund its public
debt is starting to weaken."
China Securities Journal:
- New Rules May Make Mortgages Harder to Get. The government is establishing new rules for mortgages that will make it harder
for some borrowers to qualify but that are designed to prevent the kind of risky
lending that nearly caused the housing market to collapse during the financial
crisis.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 83.0 +2.0 basis points.
- NASDAQ 100 futures +.03%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Import Price Index for December is estimated to rise +.1% versus a -.9% decline in November.
- The Trade Deficit for November is estimated at -$41.3B versus -$42.2B in October.
2:00 pm EST
- The Monthly Budget Deficit for December is estimated at -$1.0B versus -$86.0B in November.
Upcoming Splits
Other Potential Market Movers
- The Fed's Plosser speaking, USDA crop report, UK GDP report, (BBY) sales results and the Goldman Sachs Energy Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and technology
shares in the region. I expect US stocks to open modestly higher
and to weaken into the afternoon, finishing modestly lower. The Portfolio is
50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 140.0 +45.8%
- Total Put/Call .77 -9.41%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.63 +.03%
- European Financial Sector CDS Index 127.40 +2.57%
- Western Europe Sovereign Debt CDS Index 99.83 -1.96%
- Emerging Market CDS Index 213.69 +2.76%
- 2-Year Swap Spread 14.0 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -16.50 +3.5 bps
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- China Import Iron Ore Spot $158.50/Metric Tonne -.19%
- Citi US Economic Surprise Index 28.70 -1.3 points
- 10-Year TIPS Spread 2.53 +1 bp
Overseas Futures:
- Nikkei Futures: Indicating +118 open in Japan
- DAX Futures: Indicating +30 open in Germany
Portfolio:
- Higher: On gains in my medical/biotech/tech/retail sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
