Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 116.0unch.
- Total Put/Call .98 +5.38%
Credit Investor Angst:
- North American Investment Grade CDS Index 89.46 +1.09%
- European Financial Sector CDS Index 157.75 +1.89%
- Western Europe Sovereign Debt CDS Index 106.78 +.28%
- Emerging Market CDS Index 232.93 -.19%
- 2-Year Swap Spread 16.0 -.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -16.75 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- China Import Iron Ore Spot $155.10/Metric Tonne+.58%
- Citi US Economic Surprise Index -29.8 +.1 point
- 10-Year TIPS Spread 2.55 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating -30 open in Japan
- DAX Futures: Indicating -2 open in Germany
Portfolio:
- Higher: On gains in my tech/medical sector longs and emerging markets shorts
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- Berlusconi Closes Bersani Gap to Error Margin, Poll Shows. Former
Italian Prime Minister Silvio Berlusconi narrowed the lead of
front-runner Pier Luigi Bersani to within the margin of error of an
opinion poll for the first time before Feb. 24-25 elections. The gap
between the two narrowed 0.3 percentage points from yesterday to 3.7
points, according to a daily tracking poll by Tecne institute for
SkyTG24. The survey has a margin error of 4 percentage points. Tecne had
Bersani leading by 14 percentage points on Jan. 2.
- European Stocks Drop on Concern Over Italian Austerity. UniCredit SpA and Intesa Sanpaolo SpA led a drop in Italian
shares. Vinci SA, Europe’s biggest builder, slid 3.3 percent
after posting a decline in 2012 profitability. ArcelorMittal
climbed 1.1 percent. Volvo AB jumped 4.2 percent even after
fourth-quarter profit fell as the company predicted its North
American and European markets will improve this year.
- Boehner Opposes Delay in Spending Cuts Without ‘Reforms’. House Speaker John Boehner said he will oppose any delay of
$1.2 trillion in automatic U.S. spending reductions set to begin March 1
unless Congress replaces them with other “cuts and reforms.” Boehner
said it’s time for Senate Democrats and President Barack Obama to come
up with a plan to replace the spending cuts. He said he is “more than
willing” to work with them as he reiterated his opposition to
tax-revenue increases in such a proposal. “At some point,
Washington has to deal with its spending problem,” Boehner, an Ohio
Republican, told reporters at a Washington news conference today. “I’ve
watched them kick this can down the road for 22 years that I’ve been
here. I’ve had enough of it. It’s time to act.”
- Gun-Plagued Chicago: Won’t You Come Home, President Obama? As gun violence plagues Chicago, an editorial and a news story in
President Barack Obama’s hometown newspapers this week have called on
him to come home to help address the city’s shootings and murder
problem. An editorial in today’s Chicago Sun-Times suggests Obama
hasn’t paid enough attention to the violence in his home city. “Two days
after the mass murder at a school in Newton, Conn., President Barack
Obama flew there to console the families and call for stricter gun
control,” the editorial says. “How many more children must die in
Chicago before the president does the same here?” In yesterday’s
Chicago Tribune, a news story reported on a growing chorus in the
community for the president to come to Chicago to speak about the
violence in his city. “What began as gentle pleas for a little attention
from the White House has turned into demands that the president hop on
Air Force One,”
the story said. “In African-American communities where gun violence is
rampant, people want something extra from the first black president.
They want him to say publicly to young men, as one black man to another:
Put down your guns.”
- Buffett’s Moody’s Stake May Have Fallen on S&P Lawsuit. Warren
Buffett’s Berkshire Hathaway Inc., owner of the largest stake in
Moody’s Corp., may have lost almost $300 million on the holding this
week as shares of the credit-ratings company plunged. Moody’s, the
second-biggest provider of credit ratings, dropped 19 percent through
yesterday after larger rival Standard & Poor’s said on Feb. 4 that it could face a U.S.
lawsuit over inflated mortgage-bond ratings. Omaha, Nebraska-based
Berkshire held 28.4 million Moody’s shares, or about 13 percent of the
firm, as of Sept. 30, according to data compiled by Bloomberg.
- Geithner to Join Council on Foreign Relations, Publish Book. Timothy
F. Geithner, who ended his term as U.S. Treasury Secretary in January,
will join the Council on Foreign Relations this month and plans to
publish a
book. Geithner, 51, will work for the council as a full-time
distinguished fellow in New York, where the organization is
based, the group said today in two separate emails. He was
previously a senior fellow there in 2001.
CNBC:
- Delivery Cuts Only 'One Step' To Fix Finances: Postmaster General. Ending the Saturday delivery of mail is "just one step in a plan to
resolve our finances," Postmaster General Patrick Donahoe said in an
interview on CNBC. "Going forward we still need legislation to address a
number of things." Donahoe said that this move is necessary due to dropping use of first class mail service. The
U.S. Postal Service announced Wednesday that it will stop delivering
mail on Saturdays but continue to deliver packages six days a week under
a plan aimed at saving about $2 billion annually.
- Recent Libor Settlements Are Just Tip of the Iceberg.
The web of Libor conspirators is growing. Deutsche Bank has suspended
five more traders in conjunction with a widespread investigation into
interest-rate rigging that took place during the
financial crisis and beyond, according to a person familiar with the
matter. The five suspensions come in addition to two traders claimed by
previous iterations of the review, the person said.
Reuters:
- Monte Paschi loss could be up to a billion euros. Board members at
Monte dei Paschi are expected to say on Wednesday that Italy's third
largest bank may have lost up to 1 billion euros on opaque derivatives
trades, far higher than the initial estimate. The trades are at the center of
a probe into former management of the bank which has deepened questions
about the role of banking supervisors and the influence of local
politicians ahead of Feb 24-25 parliamentary elections. A
source close to the situation said the final loss, set to be announced
after the market close on Wednesday, should be somewhere between the
preliminary estimate of around 720 million euros ($974 million) and 1
billion euros.
- Fitch: Lackluster outlook for U.S. casino operators. The 2%
payroll tax cut expiration provides another headwind for an already
lackluster outlook for U.S. casino operators, according to Fitch Ratings. Operators also face cannibalization from new openings in select markets against a difficult macroeconomic backdrop.
-
Italy's Bersani faces choice between Monti and leftist ally. The leader of Italy's centre-left
Democratic Party is facing pressure to ditch his leftist allies
and seek a pact with outgoing premier Mario Monti as a resurgent
Silvio Berlusconi threatens to spoil an election victory that
once seemed assured.
Financial Times:
- Miller maintains an appetite for Apple(AAPL). Investors
have Apple all wrong, according to Bill Miller. The best performing
mutual fund manager last year thanks to big bets on unloved stocks, he
says the world’s largest listed company could be worth 50 per cent more.
Style Underperformer:
Sector Underperformers:
- 1) Oil Service -1.5% 2) Computer Services -1.20% 3) Retail -1.0%
Stocks Falling on Unusual Volume:
- INFN, SU, TNAV, GPOR, CETV, LBTYA, GNW, ING, HK, TOT, VOCS, WNC, DB, VMED, VOCS, WXS, CFX, PER, CHRW, KB, HNI, JIVE, NMM, EXPE, MPEL, WNC, ULTI, GME, VASC, ARUN, GPOR, HAIN, DWA, AFL, GAS, CCOI, HAIN, FBC, CME, USNA, GAS, TRMB, USG and SDT
Stocks With Unusual Put Option Activity:
- 1) EFA 2) DAL 3) XLK 4) CHRW 5) PNRA
Stocks With Most Negative News Mentions:
- 1) PBR 2) KEG 3) WYNN 4) LVS 5) COP
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Coal +1.21% 2) Education +1.19% 3) Alt Energy +1.13%
Stocks Rising on Unusual Volume:
- GDP, TWX, SFLY, TBI, RL, RS, TTWO, AGO, CMG, X, MUSA, WYN, ELLI, PANL and NFLX
Stocks With Unusual Call Option Activity:
- 1) FNP 2) GDP 3) GNC 4) UAL 5) GME
Stocks With Most Positive News Mentions:
- 1) CERN 2) MMM 3) AGN 4) RL 5) SFLY
Charts:
Evening Headlines
Bloomberg:
- Europe Yield Backup Signaling Complacency Bringing a New Crisis. European leaders lulled into
complacency by Mario Draghi’s pledge to buy their bonds may be
stumbling toward the next euro-region emergency. Policy makers are squandering the decline in borrowing
costs triggered by the European Central Bank president’s
commitment to defend the single currency, leaving the 17-nation
bloc’s economy and financial systems vulnerable, according to
economists Charles Wyplosz and Paul De Grauwe. “I don’t see how we avoid having another acute crisis now
that governments are so pleased with themselves,” Wyplosz,
director of the International Center for Money and Banking
Studies in Geneva, said in a telephone interview. “The wave of
optimism we had was unjustified. Key elements of the crisis
aren’t being dealt with.” Concern that political turbulence would
deepen backsliding
rattled markets. Ten-year bond yields in Spain and Italy rose to
their highest this year as Spanish Premier Mariano Rajoy faced
opposition calls to resign amid contested reports of corruption in his
party and Italy’s Silvio Berlusconi narrowed the front- runner’s lead
before elections in three weeks. “The crisis has never been over,” said de Grauwe, a professor at the London School of Economics and a two-time
candidate for a seat on the ECB’s Executive Board. “If this
reversal goes on we’ll get a new stage and the ECB will have to
act or it will lose credibility.”
- Eaton(ETN) CEO Says China GDP Report Overstates Growth Rate. Based
on indicators such as consumer consumption and electric power usage,
China’s gross domestic product probably grew 3 percent to 4 percent last
year, Cutler said yesterday in
a telephone interview. “That’s what we and so many multinational companies have
been feeling there in China for the last year and a half, the
economy really hasn’t been growing at 7 or 8 percent,” Cutler
said.
- China Private Equity Chilled by ’Old Days’ Asking Prices. They
aren’t budging even as the number of private-equity deals in
China fell an unprecedented 43 percent last year and domestic
initial public offerings, which private-equity firms count on to
exit the investments, tumbled 70 percent. There have been no
domestic IPOs this year, and new deals are virtually halted.
- Australian Retail Sales Fall in Longest Decline for 13 Years. Australian retail sales unexpectedly
fell for a third month in December, the longest stretch of
declines in 13 years, as consumers spent less dining out amid a
deteriorating employment outlook. The local currency dropped. Sales slipped 0.2 percent to A$21.4 billion ($22.2 billion)
from a month earlier, when they declined a revised 0.2 percent,
the Bureau of Statistics said in Sydney today. The result
compares with the median forecast in a Bloomberg News survey of
24 economists for a 0.3 percent gain. Weakness “is fairly broad-based,” said David de Garis, a
senior economist at National Australia Bank Ltd. in Melbourne,
which predicted the result and expects the RBA to cut the cash
rate to a record 2.25 percent in the third quarter. “For the
time being, retail is making no contribution to growth in the
economy.”
- Bulgaria Links Hezbollah to Bus Bomb That Killed Israelis. Bulgaria
implicated Hezbollah in the bombing of a tourist bus last year that
killed five Israelis and their Bulgarian bus driver, prompting Israel
and the U.S. to
renew calls for the European Union to designate the Lebanese
militant group a terrorist organization.
- Internet ‘Under Assault’ by Censoring UN, Regulator Says. International proposals to control
the Internet will continue after a United Nations conference in
Dubai and the U.S. should be ready to fight such efforts,
lawmakers and a regulator said. “The Internet is quite simply under assault,” Robert McDowell, a member of the U.S. Federal Communications
Commission, said yesterday at a joint hearing by three House
subcommittees. McDowell, a Republican, warned of “patient and
persistent incrementalists who will never relent until their
ends are achieved.” The U.S. and other nations refused to sign a
revised telecommunications treaty at the UN conference in December,
saying new language could allow Internet regulation and censorship by
governments. Technology companies including Google Inc. (GOOG), owner of
the world’s largest Internet search engine, also
opposed the changes.
- Brazil Losing Mantega's War as
Stagflation Threatens: Currencies. Brazil is finding that winning the
global currency wars may mean it's actually losing. After taking steps
to push the real down 16% the past two years as government officials
said monetary policy in major economies were debasing currencies such as
the dollar while driving up those in developing nations, Brazil is now
backing off efforts to weaken its exchange rate. Rather than having the
desired effect of boosting the economy, the lower real has down little
more than spur inflation, which has exceeded the central bank's 4.5%
target the last 29 months.
- Rice Jumps to 15-Month High on Signs U.S. Inventories Tightening. Rice futures surged to the highest in
almost 15 months on mounting concern that inventories are
dwindling in the U.S., the world’s fifth-biggest exporter. Stockpiles
will drop to 960,000 metric tons in the year ending July 31, down 26
percent from a year earlier, the U.S. Department of Agriculture said
Jan. 11.
Wall Street Journal:
- AIG(AIG), Fortress(FIG) Unit Test ABS With Personal-Loan Securitization. The
consumer-lending joint venture of private-equity firm Fortress
Investment Group LLC and insurer American International Group Inc. is
planning a rare securitization of subprime personal loans as early as
this week, in the latest test of risk appetite for asset-backed bonds,
where soaring demand has pushed yields to record lows. The
$604 million issue from consumer lender Springleaf Financial, the
former American General Finance, will bundle together about $662 million
of loans secured by assets such as cars, boats, furniture and jewelry
into ABS, according to a term sheet. Some loans have no collateral.
- Pension Funds Cut Back On Commodity Indexes.
Pension funds and other institutions are retreating from popular
investments linked to commodities after finding they did little to
protect their portfolios against inflation risk and the unpredictable
returns of stocks. Investors have yanked nearly $10 billion from
tradable indexes tied to energy, food, metals and other commodities
after two years of record outflows. That leaves about $133 billion, said
Kevin Norrish, a managing director at Barclays PLC. The trend is accelerating this year, analysts and investors
said, driven by lackluster returns and looming U.S. regulations that
could make these investments more complicated and costly.
- Tensions Flare as Japan Says China Threatened Its Forces.
Japan accused China's navy of locking weapons-guiding radar onto
Japanese naval forces twice in the past three weeks, an escalation of
their territorial dispute that has heightened fears of a military
conflict between the Asian giants—one that could entangle the U.S. While
no shots were fired, the radar at issue often precedes an
attack. The incidents Japan described followed nearly two months of
increasing tussles between the two air forces, including the first-ever
reported intrusion by China into airspace claimed by Japan and the
scrambling of advanced fighter jets by both sides.
The radar incidents "were cases that
could have led to an extremely dangerous situation with just one wrong
move," Japanese Defense Minister Itsunori Onodera said at a news
conference in Tokyo Tuesday.
- Ireland 'Bad Bank' Tries to Make Good With Sales. When Ireland set up a so-called bad bank to manage the country's
mountain of distressed real-estate assets in 2009, critics blasted its
plan to liquidate its properties and loans with a face value of €74
billion ($100 billion) over the long time frame of 10 years.
Three years later, these detractors are saying that time has proved them right.
- White House Weighs Emission Rules. State of the Union Could Signal Effort to Curb Greenhouse Gases From Existing Coal-Powered Facilities.
President Barack Obama in next week's State of the Union speech will
lay out a renewed effort to combat climate change that is expected to
include using his authority
to curb emissions from existing power plants, people who have talked to
the administration about its plans said.
- Payback for a Downgrade? The feds sue S&P but not Moody's for pre-crisis credit ratings.
The feds sue S&P but not Moody's for pre-crisis credit ratings. To this day, more than two years after the Dodd-Frank law ordered
their repeal, SEC rules still force institutions to follow the advice of
these government-anointed credit raters. Therefore the more appropriate
defendant for Monday's lawsuit would be the SEC. But as a modest first
step before suing a company for $5 billion, shouldn't the government at
least stop mandating its products?
Fox News:
CNBC:
Zero Hedge:
Business Insider:
NY Post:
- Heads will roll. Penney’s(JCP) Johnson seen slashing jobs. JCPenney CEO Ron Johnson is getting ready to break more hearts at headquarters — a few hundred more. In
what some Penney insiders are calling the “St. Valentine’s Day
Massacre,” the former Apple exec plans this month to fire at least 10
percent of the remaining 3,000 employees at the retailer’s home offices
in Plano, Texas, sources told The Post.
Reuters:
- Chipotle(CMG) 4th quarter profit up, despite higher food costs. Chipotle Mexican Grill Inc
reported higher quarterly profit on Tuesday, despite higher
costs for beef and other ingredients that took a bite out of
margins. The results from the popular burrito chain come as U.S.
restaurant companies virtually across the board are bracing for
higher food prices due to last summer's historic U.S. drought. The shares of Chipotle, long an investor darling due to its
fast growth, rose 2.6 percent to $312.88 in after-hours trading.
Financial Times:
- US regulator demands stricter bank loan ratio. A
top US financial regulator is demanding a stricter cap on bank
leverage, joining a growing group of influential policy makers who are
challenging the Basel III capital accords. Jeremiah Norton, a Republican director on the Federal Deposit
Insurance Corporation, plans to argue during a speech on Wednesday that
US regulators should propose a more robust leverage ratio that would
force big banks to either significantly increase their equity capital or
sell large chunks of assets.
The Times:
- Door is about to slam shut on high-rolling holidays to Macau. Beijing is planning a crackdown on Triad-linked “junket” operators who bring
high-rolling gamblers into Macau from across China and smooth a
money-laundering route that processes billions of dollars every year.
The move, which law enforcement sources say will begin after Chinese new
year
in late February and will involve police operations in more than six big
Chinese cities, is part of an anti-corruption campaign led by Xi
Jinping, the country's president-in-waiting. "The squeeze has already
started on a small scale, but the operators themselves believe that
something bigger is coming within the next few weeks," a Macau gaming industry source said.
Nikkei:
- Toyota Suspends Plans for New Plants. The co. will halt plans for 3 years starting next fiscal year, citing comments yesterday from Director Takahiko Ijichi.
China Daily:
- NY Times, WSJ Hacking Claims Are 'Puppet Show'. The U.S. media seems to be a puppet of the U.S. government when they make hacking allegations that "recklessly" smear China, the People's Daily says in a commentary. The report named claims by the New York
Times, Wall Street Journal, Washington Post and Twitter. The commentary
written by Wen Zian, a reporter at the newspaper, was posted on page 3
of the newspaper that is published by the Chinese Communist Party.
Shanghai Securities News:
- Beijing to Release New Measures on Property Control. Some first-tier cities including Beijing will release new measures to curb demand because of overheating in property markets, citing a person close to Beijing housing commission. The threshold for home purchases will be raised, according to the report. Measures may come out before National People's Congress and Chinese People's Political Consultative Conference in March, the report said.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 116.5 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 90.0 -2.0 basis points.
- NASDAQ 100 futures +.15%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory
build of +2,650,000 barrels versus a +5,947,000 barrel gain the prior
week. Gasoline supplies are estimated to rise by +900,000 barrels versus
a -956,000 barrel decline the prior week. Distillate inventories are
estimated to fall by -625,000 barrels versus a -2,315,000 barrel decline
the prior week.
Upcoming Splits
Other Potential Market Movers
- The ECB Bank Lending Survey, Australia Unemployment Change, weekly MBA mortgage applications report and the Cowen Aerospace/Defense Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker 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.
Broad Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 116.0 +1.75%
- Total Put/Call 1.01 -3.81%
Credit Investor Angst:
- North American Investment Grade CDS Index 88.01 -2.5%
- European Financial Sector CDS Index 154.87 -2.7%
- Western Europe Sovereign Debt CDS Index 106.5 +1.5%
- Emerging Market CDS Index 232.35 +.12%
- 2-Year Swap Spread 16.75 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -16.25 +1.0 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- China Import Iron Ore Spot $154.20/Metric Tonne unch.
- Citi US Economic Surprise Index -29.9 -.6 point
- 10-Year TIPS Spread 2.56 unch.
Overseas Futures:
- Nikkei Futures: Indicating +79 open in Japan
- DAX Futures: Indicating +6 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/medical/retail/biotech sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
