Evening Headlines
Bloomberg:
- South Korea Says Likely North Korea Conducted a Nuclear Test. North
Korea likely conducted its third nuclear test today, a South
Korean government official said, escalating tensions with an
international community that has sought to curb the totalitarian state’s
atomic ambitions. “Artificial quake tremors from North Korea
are likely to be a nuclear test but we will need to take a closer look
at the details to be sure,” South Korean Defense Ministry spokesman Kim
Min Seok said by phone. Japanese Prime Minister Shinzo Abe called a
meeting of his security council.
- Euro-Skeptic Grillo Pushes for Italy Debt Renegotiation in Vote.
Beppe Grillo, the Italian comic poised to play a spoiler in this
month’s national elections, is gaining ground in opinion polls as he
campaigns for sovereign
debt relief to revive the country’s stagnant economy. “The debt must be
renegotiated and the interest on the
debt must be renegotiated,” Grillo said yesterday in a
Bloomberg Television interview in Trento. “We won’t have growth
in this country for 10 years if the climate stays as it is.”
Grillo, a self-described populist, has rallied to nearly 20
percent in some polls with a call to reconsider euro membership
and to drive established politicians from parliament.
- Egyptians Rally Against Mursi on Anniversary of Mubarak Ouster. Egyptians
rallied against President Mohamed Mursi to mark the second anniversary
of his predecessor’s ouster, in a show of force that could precipitate
more violence. Security forces beefed up their presence outside the
presidential complex in anticipation of marches descending on the area
on the second anniversary of Hosni Mubarak’s departure, the state-run
Middle East News agency said. Dozens of protesters
temporarily blocked the 6th of October bridge spanning the Nile
in central Cairo, chanting slogans against Mursi and his Muslim
Brotherhood, it said.
Wall Street Journal:
- Rubio Gains GOP Influence. Sen. Marco Rubio plans to follow his prime-time response to the
president's State of the Union address with his own legislative push on
education funding and help for small businesses—all part of a larger
effort to build his image as a conservative leader with a bipartisan
bent.
The Florida senator's star turn as GOP
spokesman Tuesday night, when he will give his party's official response
to the president, comes as Republicans increasingly look to the
41-year-old lawmaker to be a flag-carrier for the party after its
election setbacks last year.
- More Stable Airlines Fly Out of Mergers. Fliers Poised to Benefit From Greater Investments, Stability.
The U.S. airline industry is starting to fly high again. An expected
merger agreement this week between AMR Corp.'s American Airlines and US
Airways Group Inc. could end the latest chapter on consolidation that
has helped to stabilize an industry troubled for decades.
- New Rules for Credit-Default Swaps Targeted for April. The credit-default-swap market is set to get its second major
overhaul or “big bang” this year as the industry looks to fix structural
problems some traders say have been stifling the market. A panel of representatives from banks and investment firms plan to
finish new rules for CDS by April, said a person briefed on their
discussions. The International Swaps and Derivatives Association and its
legal counsel, Allen & Overy, are leading the effort. If supported
by enough market participants, the changes would likely be implemented
in the second quarter, the person said. The proposals include changes to the effective dates of the
protection CDS offer and the assets that can be delivered for settlement
in cash. The new rules have the potential to affect trillions of
dollars of financial contracts tied to the debt of companies and
governments around the world.
- Push to Gauge Value of College Gains Steam. U.S. and state officials are intensifying efforts to hold colleges
accountable for what happens after graduation, a sign of frustration
with sky-high tuition costs and student-loan debt. Sens. Ron
Wyden (D., Ore.) and Marco Rubio (R., Fla.) are expected to reintroduce
this week legislation that would require states to make more accessible
the average salaries of colleges' graduates. The figures could help
prospective students compare salaries by college and major to assess the
best return on their investment.
Dow Jones:
- Moody's Cuts Outlook On Advanced Economies Even as Risks Ease. Moody's Investors Service lowered its outlook Tuesday for the world's advanced economies, even as risks to the global economic recovery continue to diminish. The rating company predicts that real gross domestic product growth for the eight countries in the G-20 of advanced economies, including the U.S., Japan, Germany and the U.K., will be around 1.4% in 2013, 0.2 percentage points lower than Moody's previous forecast in November, reflecting recent weak data. "While business confidence should strengthen as the economic situation improves, fiscal consolidation and high
unemployment will continue to impede recovery," Moody's said in its latest Global Macro Outlook report, published
Tuesday.
MarketWatch.com:
CNBC:
- State of the Union May Well Set Tone for Budget Talks. President
Barack Obama's State of the Union speech Tuesday could
drive market focus straight to the next skirmish in the budget
and deficit battle with Congress, depending on his tone. Traders are
watching to see how the president addresses the "sequester," or the
automatic spending cuts that would kick in after March 1, if there is no
action by Congress to stop them. "I think we're going to see more of a
line drawn in the sand on
sequestration," said David Gilmore of FX Analytics. "It will be
interesting to see where he is on reducing the deficit. I think we've
learned about the fiscal cliff is stuff happens at the last minute. Can
kicks should be expected. There's no reason for suicide watch when it
comes to fiscal policy."
Zero Hedge:
Business Insider:
CNN:
- Drones become big business. Companies
benefiting from this spending include Northrop Grumman (NOC), General
Atomics, Lockheed Martin (LMT), Boeing (BA), Israel Aerospace, and
Textron (TXT).
The Blaze:
Real Clear Politics:
- In Health Care, One Law Is Working Like a Charm. “We have to pass the bill so you can find out what’s in it,” said
Nancy Pelosi during the debate over Obamacare. The Affordable Care Act
passed, and Americans are now finding out. It’s not a pretty picture.
Take employment. “Medical device makers in Massachusetts and
elsewhere are warning of potential job losses,” reports The Boston
Globe, because of a 2.3-percent tax on medical devices imposed by law.
Even liberal-heartthrob-turned-Massachusetts-Senator Elizabeth Warren, a
supporter of the law, says repealing that tax is “essential.”
Reuters:
- BNY Mellon(BK) loses U.S. tax case, to take $850 mln profit hit. BNY Mellon Corp said on
Monday it will take an $850 million charge against first-quarter
profit after losing a high-stakes tax case to the U.S. Internal
Revenue Service, a move that will also erode some of its
capital. The BNY Mellon case was the first to go to trial since the
IRS accused several U.S. banks of generating artificial foreign tax credits through loans with London-based Barclays Plc
.
- PIMCO flagship fund decreases mortgage holdings in Jan. The PIMCO Total Return Fund,
the world's largest bond fund run by Bill Gross, decreased its
mortgage holdings to its lowest level since mid-2011, ahead of
the prospect of higher interest rates and emerging inflationary
pressures.
- Venezuela Devaluation Hits US, European Companies. Venezuela's latest currency devaluation will hurt a range of U.S. and
European companies that sell to consumers in the country, as
state-imposed price controls make it more difficult for those companies
to protect their profits.
Telegraph:
- ECB executive warns on Cyprus aid delays. European Central Bank executive board member Joerg Asmussen is pressing for
agreement over Cypriot aid within weeks, in a move which will agitate a
German government keen to delay any action.
Evening Recommendations
Bernstein:
- Downgraded Facebook(FB) to Market Perform, lowered target to $27 from $33.
Night Trading
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 114.0 unch.
- Asia Pacific Sovereign CDS Index 88.0 unch.
- NASDAQ 100 futures -.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- The NFIB Small Business Optimism Index for January is estimated to rise to 89.0 versus 88.0 in December.
10:00 am EST
- JOLTs Job Openings for December are estimated at 3700 versus 3676 in November.
2:00 pm EST
- The Monthly Budget Deficit for January is estimated at -$2.00B versus -$27.41B in December.
Upcoming Splits
Other Potential Market Movers
- The Fed's Plosser speaking, Fed's Lacker speaking, Fed's George speaking, ECB's Draghi speaking, BoE's Carney speaking, 3Y T-Note auction, Germany inflation data, Iran/IAEA Hearings, EU's transaction tax decision, weekly retail sales reports, CSFB Financial Services Forum, Goldman Tech/Internet Conference(AAPL presentation), Stifel Nicolaus Transports Conference and the (BSX) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and automaker 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.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 102.0 -23.9%
- Total Put/Call 1.06 +17.78%
Credit Investor Angst:
- North American Investment Grade CDS Index 89.57 +20.20%
- European Financial Sector CDS Index 156.73 +1.03%
- Western Europe Sovereign Debt CDS Index 104.94 -.24%
- Emerging Market CDS Index 225.67 -.58%
- 2-Year Swap Spread 16.0 +.25 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -18.0 +.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- China Import Iron Ore Spot $155.10/Metric Tonne n/a
- Citi US Economic Surprise Index -10.0 +2.5 points
- 10-Year TIPS Spread 2.54 unch.
Overseas Futures:
- Nikkei Futures: Indicating +272 open in Japan
- DAX Futures: Indicating -7 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech/tech sector longs
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- EU Crisis Damage Seen in Worst Quarter Since Lehman Wake.
Euro-area economic data due this week will probably show the damage
inflicted by the region’s sovereign debt crisis with the worst quarterly
decline in output for almost four years. Gross domestic product shrank
0.4 percent in the fourth quarter, according to the median of 45 estimates gathered by Bloomberg News. That would be the biggest decline since the
first quarter of 2009, when GDP fell 2.8 percent in the wake of the
collapse of Lehman Brothers Holdings Inc. The data is due to be
published on Feb. 14.
- Fed Joining in Alarm Over Distortion It Enabled: Credit Markets.A Federal Reserve governor is
joining those warning that junk-debt investors are poised for
losses, while his institution’s policies spur them to keep buying the debt. “High-yield is as overbought as I have ever seen it,”
Dan Fuss, whose $22.7 billion Loomis Sayles Bond Fund beat 98 percent
of its peers in the past three years, said in an interview in London
last month. “This is absolutely, from a valuation point, ridiculous.” “We
are seeing a fairly significant pattern of reaching- for-yield behavior
emerging in corporate credit,” the Fed’s Stein said in a Feb. 7 speech
in St. Louis. If the observation is accurate, he said, “it does not bode
well for the expected returns to junk bond and leveraged-loan
investors.” “The idea here is to keep rates low enough for a long enough
time that the economy builds up enough steam,” Tawil
said. “I don’t know if our economy is capable of picking up the
steam necessary.”
- Bill to Limit Too-Big-to-Fail Bank Risk Prepared in U.S. House.
U.S. Representative John Campbell plans to offer legislation aimed at
reducing the size of “too- big-to-fail” banks by requiring them to hold
more capital including long-term debt. Campbell’s bill comes as a number
of lawmakers and regulators from both parties -- including Federal
Reserve Governor Daniel Tarullo -- argue that the 2010 Dodd-Frank Act
failed to curb the growth of large banks and express support for
renewed efforts to limit the kind of systemic risk that fueled
the 2008 financial crisis.
Wall Street Journal:
- Economic Anxiety Shadows State of the Union.
Four times, President Barack Obama has stood in the well of the House
of Representatives and delivered a State of the Union address—and four
times economic anxieties have
largely overshadowed his efforts to push a broad agenda.
Fox News:
- Speculation mounts on who will be next pope. The likely successor to Pope Benedict XVI will continue his conservative
vision with a younger, more energetic outlook and perhaps hail from
Africa, Asia or Latin America, religious experts told FoxNews.com.
CNBC:
- Accounting Risk Clouds Big US Business Bets in China. Tales of shady business practices abound in China — fake revenues,
phony invoices, sham factories - but until recently, the problem seemed
confined mostly to Chinese companies. No longer. Concern is growing about risks to U.S.-based multinationals in a
country where American audit regulators are locked out by the Chinese
government and bribery and fraud are routine.Questions about transparency and integrity weigh heavily on China.
Reuters:
Financial Times:
- Caterpillar(CAT) digs into trouble in China. Caterpillar
has come badly unstuck. It has been bleeding market share as homegrown
companies – many deploying suspiciously similar technology – have
grabbed sales. Caterpillar’s chief Chinese rival, Sany Heavy,
surpassed it in market share for excavators for the first time in 2011.
Last year, a drop-off in construction pushed all-important excavator
sales down more than 30 per cent from the previous year, according to
Barclays data. As if that were not bad enough, Caterpillar has been
forced to make a costly and embarrassing goodwill impairment charge of
$580m after uncovering alleged accounting misconduct at a Chinese mining
equipment company it acquired six months before.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -2.30% 2) Gaming -1.75% 3) HMOs -1.60%
Stocks Falling on Unusual Volume:
- NVO, GMXR, GPOR, PZE, RGEN, TI, CIB, PBR, TSLA, POWI, WNC, CZR, NKA, MOH, RNF, PVG, MYGN, CHUY, RNR, LAZ, GNRC, HRC, CCJ, UAN, SAP, SLH, ROC, OPEN, BVN, VMW, SIAL, TWC, ALR and RDEN
Stocks With Unusual Put Option Activity:
- 1) LNG 2) FE 3) PAY 4) LNKD 5) A
Stocks With Most Negative News Mentions:
- 1) AMGN 2) LUFK 3) CMA 4) BA 5) HPQ
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Road & Rail +.69% 2) Alt Energy +.64% 3) Education +.51%
Stocks Rising on Unusual Volume:
- SPWR, FSLR, REGN, DMND, AOL, MTGE and STRZA
Stocks With Unusual Call Option Activity:
- 1) DMND 2) AOL 3) SFLY 4) WAG 5) PXD
Stocks With Most Positive News Mentions:
- 1) AMTD 2) FUL 3) AOL 4) USB 5) PRGO
Charts:
Weekend Headlines
Bloomberg:
- Euro-Area Debt Crisis Isn't Over, Finland's Urpilainen Says.
Finnish Finance Minister Jutta Urpilainen said the economic situation
in many Western countries remains "exceptionally challenging."
"Resolving the challenges requires an ability to see further; short-term solutions to quell panic won't resole the situation." Europe is headed for a social crisis of high unemployment, Urpilainen said. "Finland won't co-operate on any terms" in the EU. "It's our job to defend Finnish taxpayers."
- Euro Ministers Seek New Crisis Momentum as Unrest Returns. European finance chiefs will seek to
win back crisis-management momentum to navigate the currency
area through emerging political pitfalls after markets signaled
last week that the three-year crisis is far from over. Ministers
from the 17-member euro area meet in Brussels
today to discuss aid to Cyprus and Greece as a tightening
election contest in Italy and a political scandal in Spain disrupt
market calm. Group of 20 finance chiefs and central bankers will gather
in Moscow Feb. 15-16. “We don’t know yet how we’re going to get out
of the crisis,” Wolfgang Franz, the chairman of Chancellor Angela
Merkel’s council of economic advisers, told Welt am Sonntag. “If the
crisis is a marathon, we’ve got two-thirds of the course behind us. But
the last third is always the hardest.”
- ECB’s Visco Says Some Italian Lenders Still Need More Capital. European Central Bank council member Ignazio Visco said some medium to large Italian banks need more capital
as the country’s recession drags on. “Some large- and medium-sized
groups still must make progress on the road to broadening their
resources,” Visco, also head of Italy’s central bank, said in a speech
today in Bergamo, Italy. Increasing capital “allows a reduction of
financial leverage without cutting credit support to the real economy.
The strengthening is in the interests of shareholders.” Italy is mired
in its fourth recession since 2001 as Prime Minster Mario Monti’s
policies to contain the budget deficit curb domestic demand.
Unemployment was at the highest in more
than 13 years in December and consumer confidence fell in
January to the lowest level since at least 1996.
- Urpilainen Sees No Direct Bank Recaps From ESM in 'Near Future'. Finnish Finance Minister Jutta Urpilainen said using the European Stability Mechanism for direct recapitalization of banks won't happen "in the near futures." Says stance on direct recapitalization hasn't changed; says any direct recapitalization requires the banking union to be in operation. Urpilainen also said talks to allow regulators to force senior bondholders of failing banks to take on losses are "entirely open."
- Delighted by EU Budget, U.K. Tories Demand More Rows With Europe. David
Cameron will appear before U.K. lawmakers today to report on his
negotiation of a reduction in the European Union budget, with
euro-skeptics in his party congratulating him, and urging more
confrontations in Brussels. “I would like to congratulate the prime
minister for securing a cut in the EU budget,” Mark Reckless, who
organized a record-breaking Conservative lawmaker rebellion over the
budget, said in a telephone interview. “The diplomats, the Liberal
Democrats all said the best he could hope for was a
freeze, but he delivered for Britain.” Reckless said the prime
minister’s speech last month
promising a renegotiation of EU membership terms and then a
referendum “hugely increases leverage in Brussels -- they know
if they don’t give us what we want, we’ll leave.”
- Australia December Home-Loan Approvals Fall for Third Month. Australian home-loan approvals fell in December for a third month and
the proportion to first-home buyers slumped to an eight-and-a-half year
low as central bank interest-rate cuts failed to lure buyers into the
market. The number of loans granted to build or buy houses and
apartments declined 1.5 percent from November, when they dropped a
revised 0.7 percent, the statistics
bureau said in Sydney today. The median estimate in a Bloomberg News
survey of 16 economists was for approvals to remain unchanged.
- Fed Joining in Alarm Over Distortion It Enabled: Credit Markets. A Federal Reserve governor is joining those warnings that junk-debt investors are poised for losses, while his institution's policies spur them to keep buying the debt. Yields on a record 38% of the $1.1 trillion of notes sold by the neediest U.S. borrowers were trading below the 10-year average rate for investment-grade debentures last month, Barclays Plc data show. Investors poured a record $1.3 billion into U.S. leveraged loans funds last week as covenants on the debt weaken the most ever. The central bank's policy of keeping benchmark borrowing costs at about zero for a fifth year is pushing investors into riskier debt, even as Fed Governor Jeremy Stein warns that the market for speculative-grade debt may be overheating. While U.S. prosecutors are suing S&P with deliberately failing to provide warnings against losses on collaterialized debt obligations before the credit crisis,
the government's stimulus is fueling demand for similar products now.
"No matter how loud the chorus gets that this is crazy, the bulls are
going to continue to run because there's nowhere else to put money in
fixed income," said David Tawil, the co-founder of Maglan Capital LP, a distressed-debt hedge fund that manages about $50 million. "If I'm saying now that the deals are getting laughable, if things don't change, six months from now the deals are going to be stupid."
- Egyptians Demonstrate, Vent Anger on Presidential Palace. Demonstrators threw Molotov cocktails
and rocks at the main presidential palace in Cairo yesterday, as
thousands rallied against President Mohamed Mursi and his Muslim
Brotherhood in protests that ignited clashes across the country. The army put up barbed wire, and the Republican Guard
fanned around the palace. Police used tear gas to disperse
protesters armed with the Molotov cocktails that set parts of
the palace on fire, the official Middle East News Agency
reported, citing an interior ministry official. Security forces
also clashed with protesters around President Mohamed Mursi’s
house and Freedom and Justice Party headquarters in al-Sharqiya,
MENA said.
- Ambani Says U.S. Will Be Energy Independent in 5-7 Years. Mukesh
Ambani, the billionaire chairman of Reliance Industries Ltd., said that
the U.S.’s development of shale oil and gas will make the country
energy independent as early as 2018. “For many decades, we have heard that the U.S. will be independent of foreign imports of energy,” Ambani, whose
company operates the largest oil refining complex in the world,
said in an interview to be aired today on CNN’s “Fareed Zakaria
GPS” program. “Realistically, I can now tell you that it is my
judgment this will happen in the next five to seven years.”
- Gates Backs Independent Review of Drone Strikes on Americans. Former
Defense SecretaryRobert Gates said drone strikes against U.S. citizens
should be subject to independent review, throwing his support behind an
effort to restrict presidential action when it comes to killing American
citizens. Gates said on today’s CNN’s “State of the Union” program
that he believes the Obama administration has applied stringent
safeguards in the targeted killing of American citizens suspected of
terrorism “but who is to say about a future president?” The issue, which
received little attention during President Barack Obama’s first term,
became a central focus during the Senate confirmation hearing of John O.
Brennan, nominated to be the new chief of the Central Intelligence
Agency. Both Republicans and Democrats continued to press the issue on
the Sunday morning talk shows. “The president, a politician,
Republican or Democrat, should never get to decide someone’s death by
flipping through some flashcards,” Senator Rand Paul, a Kentucky Republican, said on the CNN program.
- Putin Turns Black Gold Into Bullion as Russia Out-Buys World. Not only has Putin made Russia the world’s largest oil
producer, he’s also made it the biggest gold buyer. His central
bank has added 570 metric tons of the metal in the past decade, a quarter more than runner-up China, according to IMF data compiled by Bloomberg.
- Hedge Funds’ Fourth Bullish Week Boosts Copper Bets: Commodities. Hedge funds increased bullish
commodity bets for the fourth straight week and became the most
bullish on copper since December as signs of faster growth in
the U.S. and China fueled the best start to the year since 2005.
Speculators boosted net-long positions across 18 U.S. futures and
options in the week ended Feb. 5 by 11 percent to 885,655 contracts,
marking the longest stretch of gains in more
than six months, U.S. Commodity Futures Trading Commission data
show. Traders lifted bullish wagers on everything from copper to
platinum, corn and soybeans.
Wall Street Journal:
- Companies Fret Over Uncertain Outlook.
Sensing better times ahead, investors have pushed the Dow Jones
Industrial Average up this year near its record high. But a different
mood is pervading U.S. companies, where executives are less optimistic
about the global economy and their own prospects, and many are lowering
financial forecasts. Fourth-quarter operating earnings topped diminished expectations,
rising 7.3% at the 339 members of the Standard & Poor's 500-stock
index that have reported results, while revenue rose 5.9%, according to
Thomson Reuters. But the companies warn that the current quarter will be
more challenging, and analysts project first-quarter earnings at
S&P companies will rise just 1.7%, Thomson Reuters says, or less
than half what they were predicting at the beginning of the year. Sixty-three S&P companies have lowered their forecasts for
first-quarter earnings, according to FactSet Research, while 17 have
raised them, the largest disparity since the firm began tracking the
data in 2006.
- Apple(AAPL) Is Testing Watch-Like Device. Apple
Inc. is experimenting with designs for a watch-like device that would
perform some functions of a smartphone, according to people briefed on
the effort. The company has discussed such a device with its major
manufacturing partner Hon Hai Precision Industry Co., one of these
people said, as part of explorations of potentially large product
categories beyond the smartphone and tablet. Apple's
efforts come as companies have introduced various kinds of wearable
gadgets, mainly designed to measure physical activity. More
sophisticated devices face big technical challenges, but also are
attracting investments from large technology companies.
- U.S., Europe Seek to Cool Currency Jitters. Amid Worries Over Japan Policy, Some G-7 Officials Discuss Underlining Commitment to Market-Driven Exchange Rates. U.S. and European financial policy makers are discussing issuing a
joint message designed to head off a potentially destabilizing round of
currency devaluations, according to people familiar with the talks. The discussions follow comments in recent months from Japanese Prime
Minister Shinzo Abe and his aides implying they were targeting a
specific exchange rate. This rhetoric, and a sharp drop in the yen, have
sparked warnings from Latin America to Europe about a looming currency
war in which nations devalue their currencies to boost exports. The question of currency devaluations is an awkward one for
industrialized nations, many of which have embarked on monetary policies
designed to boost their economies that have the side effect of
lessening the value of their currencies. The U.S. Federal Reserve's
bond-buying policy has previously sparked world-wide concern given its
impact on the dollar.
- President to Push His Economic Vision in State of Union. In his second inaugural address, President Barack Obama laid out a
roster of social policies that cheered his base and infuriated
Republicans. In Tuesday's State of the Union, the president is expected
to do the same as he pushes to complete the unfulfilled pieces of his
economic vision.
- A Cliff Congress May Go Over.
As Congress comes up on the latest budget deadline, lawmakers seem less
daunted by the prospect of going over the "cliff" this time, as partisan
positions remain far apart with only three weeks remaining before big
cuts hit.
- Back in Fashion: China's Bad Debt. Foreign and domestic investors are preparing to pounce on bad debts
held by Chinese banks—a potentially lucrative but risky area that has
disappointed investors in the past. The experience of last time might give some investors pause. Local
government politics, an opaque legal system and often patchy paperwork
frustrated many investors. Given the market has been dormant for more
than four years, many of the people with experience of negotiating
China's bad-debt bureaucracy have moved on. "A lot of the institutional
knowledge is gone," said Mr. Blomquist. "People will make the same
mistakes as last time."
- Too Much Cheering Over Stocks.
The Shiller P/E—a price-to-earnings ratio based on the average of real
or inflation-adjusted earnings over the last 10 years—is above 22. Real
annual returns have averaged under 1% in the following decade at similar
junctures, says fund manager Clifford Asness. They often were negative.
Marketwatch.com:
- Disputes Hit China-Japan Tourism. (video) Chinese demand for tour packages to Japan during the Lunar New Year
holiday has fallen by about half compared with last year. The WSJ's
Jeffrey Ng explains why Chinese tourists are avoiding what was once the
season's most popular international destination.
Fox News:
- Graham: White House stonewalling on Benghazi means 'no information, no confirmation’. Republican Sen. Lindsey Graham suggested Sunday that he would try to
hold up the appointment of President Obama’s nominees to run the CIA and
the Defense Department until the White House provides more details
about what the president and other top administration officials were
doing the night of the Benghazi terror attacks. The
South Carolina senator is among congressional Republicans most critical
of Defense Department nominee Chuck Hagel and the White House’s
handling of the Sept. 11, 2012, attacks on a U.S. outpost in Benghazi,
Libya. The attacks killed Ambassador Christopher Stevens and three other
Americans.
Zero Hedge:
Business Insider:
- SURVEY: Tons Of Fund Managers Have Already Dumped All Their US Treasuries. According to BAML strategists Ralf Preusser and Richard Cochinos,
66 percent of investors are no longer holding Treasuries, and 11
percent are thinking of selling. The two write in a note to clients that
with such bearish sentiment toward U.S. government debt, "the sell-off in Treasuries may be running out of steam."
New York Times:
- Longtime Wall Street Deal Maker Expands Advisory Firm. During his 29-year career on Wall Street, Robert Wolf has amassed a
contact list full of boldface names from the worlds of finance and
politics, up to and including President Obama. Now the deal maker is drawing upon that list as he expands the advisory shop he formed last summer.
Mr. Wolf was expected to formally announce on Monday several hires for
his firm, 32 Advisors, including former members of the Obama
administration. Among them are Austan D. Goolsbee, the former chairman
of the Council of Economic Advisers; Barry Johnson, who headed a White
House initiative to encourage foreign investment in the United States;
and Kevin Varney, until recently the senior vice president and chief of
staff of the Export-Import Bank.
LA Times:
- California lacks doctors to meet demand of national healthcare law. Lawmakers
are working on proposals that
would enable physician assistants, nurse practitioners, optometrists and
pharmacists to diagnose, treat and manage some illnesses. As the state
moves to expand healthcare coverage to millions of Californians under
President Obama's healthcare law, it faces a major obstacle: There
aren't enough doctors to treat a crush of newly insured patients. Some
lawmakers want to fill the gap by redefining who can provide healthcare. They
are working on proposals that would allow physician assistants to treat
more patients and nurse practitioners to set up independent practices.
Pharmacists and optometrists could act as primary care providers,
diagnosing and managing some chronic illnesses, such as diabetes and
high-blood pressure. "We're going to be mandating that every single
person in this state have insurance," said state Sen. Ed Hernandez
(D-West Covina), chairman of the Senate Health Committee and leader of
the effort to expand professional boundaries. "What good is it if they are going to have a health insurance card but no access to doctors?" Hernandez's proposed changes, which would dramatically shake up the medical establishment in California, have set off a turf war with physicians that could contribute to the success or failure of the federal Affordable Care Act in California.
Washington Post:
- Iran and Hezbollah build militia networks in Syria in event that Assad falls, officials say. Iran
and Hezbollah, its Lebanese proxy, are building a network of
militias inside Syria to preserve and protect their interests in the
event that President Bashar al-Assad’s government falls or is forced to
retreat from Damascus, according to U.S. and Middle Eastern officials.
The militias are fighting alongside Syrian government forces to
keep Assad in power. But officials believe Iran’s long-term goal is to
have reliable operatives in place in the event that Syria fractures into
separate ethnic and sectarian enclaves.
- U.S. said to be target of massive cyber-espionage campaign. A new intelligence assessment has concluded that the United States is
the target of a massive, sustained cyber-espionage campaign that is
threatening the country’s economic competitiveness, according to
individuals familiar with the report. The National Intelligence Estimate identifies China as the
country most aggressively seeking to penetrate the computer systems of
American businesses and institutions to gain access to data that could
be used for economic gain.
Real Clear Politics:
- Remember the Democrats' Outrage Over Waterboarding? Remember how outraged liberals said they were when they learned that
three al-Qaida bigwigs were waterboarded? If so, you may wonder why
liberals haven't been more vocal about the vague criteria the Obama
administration uses to justify killing American citizens suspected of
terrorism.
Reuters:
Financial Times:
- Radical rescue proposed for Cyprus. A
radical new option for the financial rescue of Cyprus would force
losses on uninsured depositors in Cypriot banks, as well as investors in
the country’s sovereign bonds, according to a confidential memorandum
prepared ahead of Monday’s meeting of eurozone finance
ministers. The proposal for a “bail-in” of investors and depositors, and drastic
shrinking of the Cypriot banking sector, is one of three options put
forward as alternatives to a full-scale bailout. The ministers are
trying to agree a rescue plan by March, to follow the presidential
elections in Cyprus later this month.
- Brussels fights US data privacy push. Europe’s
most senior justice official is adamant she will fight US attempts to
water down a proposed EU data protection and privacy law that would
force global technology companies to obey European standards across the
world.
Welt am Sonntag:
- Merkel Adviser Warns Against Calling Euro Crisis Over. European remains in crisis because the recent improvement builds on a pledge by the ECB to buy unlimited bonds of distressed countries, Wolfgang Franz, who heads German Chancellor Angela Merkel's council of economic advisers, said in an interview with the German newspaper. "I don't dare say yet the worse is behind us in the crisis:" Franz says. The situation remains fragile, he said. Italian elections, Cyprus's future, Spain's problems and uncertainty about reform progress in Greece and Portugal are "considerable factors of uncertainty".
Euro am Sonntag:
- German
Export Association Worries About Yen Weakness. Japan needs structural
reforms if it wants to be competitive in global markets in the long
term, Anton Boerner, president of Germany's BGA exporters' association, said. "We see the risk that Japanese companies will be able
to take away market share from German exporters because of changed
exchange rates," said Boerner. "The German trade industry disapproves of
the Japanese government's policy that essentially skirts the independence of the central bank and floods markets with yen," he said.
El Mundo:
- Spain's Ruling Party Salaries Rose by 22% in 3-Years. According
to statements from 2008-2011 posted on Spain's ruling People's Party
website. Between 2008-2011 the party earned EU427m, of which 86% came
from public subsidies.
Efe:
- Spain's Linde Says Corruption Claims Unhelpful for Recovery. Bank of Spain Governor Luis Maria Linde said allegations of corruption in the government won't be helpful to the economy, though they won't have a decisive impact. The economy is fragile and it is difficult to make predictions, he said. Petrobras may sell assets outside Brazil to raise cash, may seek partners for projects to reduce its own investments.
Estado de S. Paulo:
- Petrobras(PBR) CEO Alerts Brazil's Mantega About Debt Levels. Maria das Gracas Foster, CEO of Brazil's state-controlled oil company, told Finance Minister Guido Mantega that Petrobras's leverage ratio will rise, citing a person familiar with the situation. The leverage ratio may increase to 3.5x Ebitda in 4Q if conditions don't change; would result in the co. losing its investment-grade ratings.
Weekend Recommendations
Barron's:
- Bullish commentary on (CSX), (CAM), (NTAP), (FLR), (WEN), (KLAC) and (HSP).
- Bearish commentary on (DELL) and (HCA).
Night Trading
- Asian indices are -.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 114.0 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 88.0 -.5 basis point.
- NASDAQ 100 futures +.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
Upcoming Splits
Other Potential Market Movers
- The Fed's Yellen speaking, EU Finance Ministers Meeting, UK PPI data, (SNCR) analyst meeting and the BIO investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial 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 week.
