BETWEEN THE HEDGES

Thursday, October 10, 2013

Thursday Watch

Posted by Gary .....at 12:28 AM

Evening Headlines
Bloomberg:

IMF’s Zhu Says China Has Tools to Deal With Debt Levels. The Chinese government has room to deal with rising debt levels, which has become a “serious concern,” according to Zhu Min, a deputy managing director at the International Monetary Fund.

Asian Stocks Swing From Gain, Loss on Health Care, Energy. Asian stocks swung between gains and losses as health care shares rose while energy companies and materials producers declined. Japanese equities climbed as the yen weakened. BHP Billiton Ltd., the world’s biggest mining company, fell 1.2 percent in Sydney as it headed for its lowest close since July 22. Alfresa Holdings Corp., which makes drugs and medical devices, gained 2.9 percent in Tokyo. Mazda Motor Corp., the automaker that gets 30 percent of sales in North America, added 2.9 percent as the yen slid for a third day on optimism the U.S. government will avoid default. Sa Sa International Holdings Ltd. dropped 4 percent in Hong Kong after Credit Suisse Group AG said the cosmetic retailer’s sales during China’s week-long holiday missed estimates. The MSCI Asia Pacific Index dropped 0.2 percent to 138.75 as of 11:47 a.m. in Tokyo after rising as much as 0.2 percent.

Brazil Extends Record Rate Lift as Inflation Outlook Worsens. Brazil’s central bank extended today the world’s biggest interest rate increase and raised the key rate for a fifth straight time as a weaker currency hampers efforts to slow inflation. The bank’s board, led by President Alexandre Tombini, voted unanimously to raise the benchmark Selic to 9.5 percent from 9 percent, as forecast by all 49 economists surveyed by Bloomberg. Policy makers, repeating language used in their August decision, said the increase will ensure slower inflation next year. They have raised borrowing costs by 225 basis points, or 2.25 percentage points, since April. “Inflation is elevated and well above target,” said Luciano Rostagno, chief strategist at Banco Mizuho do Brasil SA. “There are still risks from a weaker real, which can pressure inflation in the next few months.”

German Greens Poised to Rebuff Merkel’s Coalition Overtures. Germany’s Greens are approaching today’s meeting with Chancellor Angela Merkel and her bloc looking for an excuse to abandon talks before they’ve begun. With the party leadership in transition, a gulf in policy with Merkel’s side, a membership skeptical of a coalition and open animosity with Merkel’s Bavarian allies, the Greens may conclude there’s no chance of finding common ground. The Greens team is due to meet with Merkel and 13 members of her Christian Democratic-led bloc at 4:30 p.m. in Berlin today.

Debtors’ Prison Is No Place for Country Like U.S. How is it government officials come to contradictory conclusions about what the U.S. Treasury can do in the event it lacks the money to pay all its bills? Can the Treasury prioritize and pay bondholders before everyone else? The Treasury says no. The Government Accountability Office says yes. Who’s right?

Toyota Trims Plug-in Prius Price to Improve U.S. Sales. Toyota Motor Corp. (7203) is reducing the price of its plug-in Prius models to try to boost sales and meet a California mandate as automakers find that cost is critical to U.S. consumers’ willingness to buy rechargeable autos. The world’s largest seller of hybrid autos is trimming the base price of the 2014 Prius Plug-in to $29,990, a $2,010 reduction from the current car, while the top-end Advanced grade gets a 12 percent cut to $34,905, Toyota said in a statement yesterday. The new versions, which also get a $2,500 U.S. tax credit, go on sale next month.

Wall Street Journal:

Shutdown Standoff Shows Signs of a Thaw. Near-Term Debt-Limit Increase Gains Support From Conservatives as White House Meeting Is Set. The partisan logjam that has paralyzed the capital showed signs of easing Wednesday, as conservative Republicans warmed to the idea of a short-term increase in the country's borrowing limit and House GOP leaders prepared for their first meeting with President Barack Obama since the government shutdown began. Rep. Paul Ryan (R., Wis.), chairman of the House Budget Committee, outlined a plan Wednesday to fellow conservatives to extend the nation's borrowing limit for four to six weeks, paired with a framework for broader deficit-reduction talks, according to lawmakers briefed on the proposal. The greater the spending reduction the talks produced, the longer the next extension of the debt ceiling would be under Mr. Ryan's plan.

Chinese Think Tank Puts Shadow Banking at 40% of GDP. As the fastest-growing part of China’s financial sector, shadow banking is no longer the sideshow it was five years ago. The sector grew from almost nothing a few years ago to the equivalent of 40% of gross domestic product at the end of 2012, the Chinese Academy of Social Sciences said in a report published Tuesday.

IMF Sees Greece Missing 2014 Bailout Budget Target. Greece is projected to miss a key bailout target for next year according to an International Monetary Fund report published Wednesday, a factor likely complicating already-fraught negotiations over the next tranche of financing for the ailing economy. The IMF projects in its latest Fiscal Monitor report that Greece’s budget surplus will only hit 1.1% of gross domestic product next year instead of the 1.5% of GDP target outlined in its bailout terms with the IMF and the euro zone.

Mobile Advertising Begins to Take Off. Spending More Than Doubled in the First Half.

Let's Get Cynical. Why should we trust the government--especially now? "An old friend who has been active in politics for more than 30 years tells me he's giving up," claims Robert Reich in a Puffington Host post: " 'I can't stomach what's going on in Washington anymore,' he says. 'The hell with all of them. I have better things to do with my life.' "

David Malpass: The Bigger Battle Behind the Shutdown. A staggering $250 billion per month, 80% of spending, runs on autopilot without congressional control. At its core, the shutdown is part of a much bigger battle to restrain the federal government. It is spending $3.6 trillion per year without a budget, and its expenditures are expected to increase rapidly in the years ahead. Meanwhile, the government has piled up $17 trillion in debt and $60 trillion more in unfunded spending promises. The Federal Reserve will borrow $1.1 trillion in 2013 alone to buy bonds—and it reserves the right to borrow unlimited amounts for future bond purchases without congressional or presidential permission.

Fox News:

House Republicans eye short-term debt ceiling fix, ahead of White House meeting.
Conservative lawmakers are exploring the possibility of a short-term increase in the debt ceiling, perhaps trying to seize the opening after President Obama said a day earlier he would consider the option. Members of the Republican Study Committee, the most conservative bloc in the House, told Fox News they're looking at that possibility. Their inclination is to consider a short-term increase only if there is an agreement on a broader spending framework.

MarketWatch.com:

Ruby Tuesday(RT) first-quarter swings to loss. Ruby Tuesday Inc. swung to a fiscal first-quarter loss as same-store sales fell sharply and the casual-dining chain posted $7.5 million in write-downs and lease reserves related to underperforming or closed stores. Shares were down 13% at $6.58 in recent after-hours trading as the results missed expectations.

CNBC:

Chevron(CVX) warns on third quarter due to refining earnings drop. Chevron, the second-largest U.S. oil company, warned on Wednesday that third-quarter earnings would be lower than in the second quarter due to "significantly lower" earnings from its refining division as fuel margins were squeezed.

Zero Hedge:

BofAML Warns VIX-Inversion "Does Not Mean The S&P Correction Is Over". (graph)

Kyle Bass Warns "There Is No Way To Protect Yourself If US Treasuries Default". (graph)

How Brazil's Middle Class Dream Became A Debt-Fuelled Nightmare.

ValueWalk:

New Study Shows HFT Hurts Long-Term Institutional Investors.

CNN:

Armed rebels escort Libyan PM to undisclosed location. Rebels have kidnapped Libyan Prime Minister Ali Zidan and taken him to an undisclosed location, the prime minister's spokeswoman told CNN early Thursday. Armed rebels escorted the prime minister from the Corinthian Hotel in Tripol into a convoy of waiting cars, said a hotel clerk who was not aut
horized to speak to the media.

Reuters:

Citrix(CTRX) guides results below expectations; shares dive. Cloud computing software maker Citrix Systems Inc estimated quarterly results below analysts' expectations as businesses delayed contracts, sending its shares down as much as 14 percent in extended trading. Cloud computing companies such as Citrix and VMware Inc have been facing delays in closing large deals as customers review IT budgets to prune discretionary spending. Citrix's warning could set the tone for other software companies as it comes just ahead of the third-quarter reporting season. VMware shares fell 3.3 percent after the bell.

Telegraph:

PC sales fall to lowest level for five years. Sales of personal computers hit their lowest level since 2008 in the third quarter, falling 8.6pc on the same period last year.

Evening Recommendations
Cowen:

Raised (CHKP) to Outperform, target $65.

Night Trading

Asian equity indices are -.50% to +.50% on average.

Asia Ex-Japan Investment Grade CDS Index 149.0 -4.0 basis points.

Asia Pacific Sovereign CDS Index 116.25 -1.25 basis points.

FTSE-100 futures +.29%.

S&P 500 futures +.38%.

NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

(VAC)/.39

(SFY)/.16

(MU)/.23

Economic Releases
8:30 am EST

Initial Jobless Claims are estimated to rise to 311K versus 308K the prior week.

Continuing Claims are estimated to fall to 2863K versus 2925K prior.

Upcoming Splits

None of note

Other Potential Market Movers

The Fed's George speaking, Fed's Williams speaking, Fed's Taruillo speaking, Fed's Bullard speaking, BoE rate decision, Germany CPI, 30-Year T-Bond auction, BoJ's Kuroda speaking, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (LINTA) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and consumer 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.

Wednesday, October 09, 2013

Stocks Reversing Slightly Higher into Final Hour on Central Bank Hopes, Short-Covering, Bargain-Hunting, Financial/Medical Sector Strength

Posted by Gary .....at 3:27 PM

Broad Equity Market Tone:

Advance/Decline Line: About Even

Sector Performance: Mixed

Volume: Around Average

Market Leading Stocks: Performing In Line

Equity Investor Angst:

Volatility(VIX) 19.27 -5.21%
Euro/Yen Carry Return Index 137.20 +.07%
Emerging Markets Currency Volatility(VXY) 9.63 +.31%
S&P 500 Implied Correlation 52.92 -10.11%

ISE Sentiment Index 104.0 -6.31%

Total Put/Call 1.34 +41.05%

NYSE Arms .76 -61.43%

Credit Investor Angst:

North American Investment Grade CDS Index 83.02 -1.75%

European Financial Sector CDS Index 138.58 +.27%

Western Europe Sovereign Debt CDS Index 78.0 unch.

Emerging Market CDS Index 289.54 -.45%

2-Year Swap Spread 13.0 +1.5 basis points

TED Spread 21.0 +.75 basis point

3-Month EUR/USD Cross-Currency Basis Swap -10.25 +.25 basis point

Economic Gauges:

3-Month T-Bill Yield .04% unch.

Yield Curve 229.0 +4 basis points

China Import Iron Ore Spot $131.80/Metric Tonne +.08%

Citi US Economic Surprise Index 43.30 -.4 point
Citi Emerging Markets Economic Surprise Index 1.20 +.5 point

10-Year TIPS Spread 2.21 +3 basis points

Overseas Futures:

Nikkei Futures: Indicating +137 open in Japan

DAX Futures: Indicating +36 open in Germany

Portfolio:

Slightly Higher: On gains in my medical /retail/tech sector longs and index hedges
Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
Market Exposure: Moved to 50% Net Long

Bear Radar

Posted by Gary .....at 12:08 PM

Style Underperformer:

Small-Cap Growth -1.32%

Sector Underperformers:

1) Biotech -3.06% 2) Alt Energy -2.71% 3) Networking -2.36%

Stocks Falling on Unusual Volume:

ANAC, INSM, CLDX, AEGR, CLVS, GMCR, GDOT, FAST, LRN, ICPT, ADTN, YUM, GWPH, IBB, PBYI, AMBC, ACAD, PCYC, CGIX, CAS, PINC, NQ, RBA, ALNY, MZOR, FENG, GDP, GDOT, NUS, DFRG, CLDX, BUD, YOKU, SGMO, NUS, DDD, NPSP, XOOM, SGEN, NFLX, ECYT, INCY, GTLS, MDSO, GRPN, INFI, CLNE, TSLA, MPWR, PRLB, ANGI, NCR, YELP and BX

Stocks With Unusual Put Option Activity:

1) VMW 2) OIH 3) CVX 4) IBB 5) COST

Stocks With Most Negative News Mentions:

1) YUM 2) JNPR 3) TSLA 4) HRB 5) DIS

Charts:

ETFs Falling on Unusual Volume

Stocks Falling on Unusual Volume

Bull Radar

Posted by Gary .....at 11:09 AM

Style Outperformer:

Large-Cap Value -.04%

Sector Outperformers:

1) Utilities +1.01% 2) Medical Equipment +.59% 3) Telecom +.48%

Stocks Rising on Unusual Volume:

MW, JOSB, TSU and YY

Stocks With Unusual Call Option Activity:

1) RFMD 2) ARIA 3) SVU 4) AEGR 5) TMUS

Stocks With Most Positive News Mentions:

1) BA 2) PGR 3) KMB 4) MW 5) AA

Charts:

ETFs Rising on Unusual Volume

Stocks Rising on Unusual Volume

Wednesday Watch

Posted by Gary .....at 12:26 AM

Evening Headlines
Bloomberg:

Emerging-Market Economic Growth Stays Sluggish, HSBC Says. Emerging-market economic growth remains “muted” with a confidence gauge just above the threshold signaling expansion, according to HSBC Holdings Plc. (HSBA) The HSBC Emerging Markets Index rose to 50.8 in September from 50.7 in August, the bank said in a report published today, citing a survey of purchasing managers. That’s still the third-lowest reading in more than four years. A value above 50 indicates expansion and below 50 signals contraction. The index is compiled by London-based Markit Economics and tracks conditions at more than 5,000 companies.

ICBC’s Basel III Bond Falling Most Reflects Unease: China Credit. Asia’s first Basel III dollar bonds, sold by Industrial & Commercial Bank of China Asia Ltd., are the region’s worst-performing new notes this month, showing investor concern tighter regulations could cause losses. The subordinated debt, priced on Oct. 2, fell 1.1 cents on the dollar as of Oct. 7, more than any other Asian notes issued in October, prices compiled by Bloomberg show. The drop contrasts with a 0.1 percent gain for junior bonds in the region, according to Bank of America Merrill Lynch indexes.

Taiwan Warns That China Could Mount Successful Invasion by 2020. China may be able to successfully invade Taiwan by 2020 as it develops technology to prevent allies such as the U.S. from coming to the island’s aid, the Taiwanese defense ministry said. A military modernization campaign has seen China’s People’s Liberation Army enhance its ability to make long-range precision strikes and develop so-called area-denial technology, the ministry said in its 2013 National Defense Report.

India Unrest Puts 21 Million in Dark as Outages Threaten Google(GOOG). Protests against a plan to split a southern Indian state entered a fourth day, leaving about 21 million people without electricity as outages threatened to affect technology companies like Google Inc. (GOOG) and Microsoft (MSFT) Corp. Striking workers shuttered power plants and impeded distribution, extending blackouts that started Oct. 6 in six districts of Andhra Pradesh. The protesters oppose Prime Minister Manmohan Singh’s move last week to divide the state before national elections due by May.

Bad Banks Turn Toxic China Debt to Treasure for Investors.

Yum(YUM) Profit Declines 68% as Same-Store Sales Slump in China. Yum! Brands Inc., whose KFC fast-food chain is facing more competition in China, said third-quarter profit fell 68 percent and cut its 2013 earnings forecast as same-store sales dropped in the Asian nation. Net income (YUM:US) decreased to $152 million, or 33 cents a share, from $471 million, or $1, a year earlier, the Louisville, Kentucky-based company said today in a statement. Excluding certain items, profit was 85 cents a share. Analysts projected 92 cents, the average of 23 estimates (YUM:US) compiled by Bloomberg.

South Korea Confirms North Has Restarted Main Nuclear Site. North Korea restarted its Yongbyon nuclear reactor, a South Korean lawmaker said, as the North put its troops on high alert and said it’s “ready to confront” the U.S. and the South over naval drills set for this week. The National Intelligence Service informed lawmakers of the restart, ruling New Frontier Party lawmaker Cho Won Jin said by phone yesterday. Lawmakers were also told that North Korean leader Kim Jong Un told his cabinet he plans to seek reunification with the South by force in three years, Cho said.

Asian Stocks Outside Japan Decline on U.S. Gridlock, IMF. Asian stocks outside Japan fell on concern the impasse over the U.S. debt limit may lead to a default and after the International Monetary Fund cut its global outlook. Japanese shares reversed losses after the yen weakened. The MSCI Asia Pacific ex-Japan Index slid 0.3 percent to 465.60 as of 12:36 p.m. in Tokyo, while the broader regional gauge was little changed at 138.49.

Rubber Retreats as IMF’s Growth Outlook Weakens Demand Outlook. Rubber retreated from a one-week high after the International Monetary Fund cut its global growth outlook for this year and next, raising concern demand may weaken for the commodity used in tires. The contract for March delivery on the Tokyo Commodity Exchange fell as much as 1.1 percent to 261.2 yen a kilogram ($2,688 a metric ton) and traded at 263.1 yen at 10:30 a.m.

Rebar Trades Near 3-Month Low as IMF Cuts China Growth Outlook. Steel reinforcement-bar futures traded near the lowest level in three months after the International Monetary Fund cut its forecast for China’s economic growth, damping demand for the building material. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 0.5 percent to 3,580 yuan ($585) a metric ton and traded at 3,585 yuan at 10:14 a.m. local time. Futures fell to 3,541 yuan yesterday, the lowest for a most-active contract since July 2.

Wall Street Journal:

Janet Yellen, a Backer of Pushing the Fed's Policy Boundaries. Expected Nominee for Central-Bank Chief Has Easy-Money Leanings. Janet Yellen's computer screen saver on a neat desk in her office at the Federal Reserve is a photo of the garden at her home in Berkeley, Calif. If the Senate confirms her to be the central bank's next leader, the colorful patch of ground will remain a distant memory for much of the next four years. These days Ms. Yellen is more focused on helping other things grow, such as consumer spending, investment and most of all jobs—all reasons President Barack Obama plans to announce Wednesday he will nominate the methodical and meticulous economist to run the Fed.

Obama to Tap Yellen as Fed Chief. Streaming Coverage.

Bill Comes Due for Brazil's Middle Class. Debt Woes Help Explain Why the Country's Once-Dazzling Growth Has Fizzled.

J.P. Morgan(JPM) to Cull Business Clients.

Jos. A. Bank(JOSB) Is a Possible Suitor for Men's Wearhouse(MW). Proposed Deal Would Create Nationwide Powerhouse in Men's Apparel.

Paul Ryan: Here's How We Can End This Stalemate. Both Reagan and Clinton negotiated debt-ceiling deals with their opponents. We're ready to negotiate. The president is giving Congress the silent treatment. He's refusing to talk, even though the federal government is about to hit the debt ceiling. That's a shame—because this doesn't have to be another crisis. It could be a breakthrough. We have an opportunity here to pay down the national debt and jump-start the economy, if we start talking, and talking specifics, now. To break the deadlock, both sides should agree to common-sense reforms of the country's entitlement programs and tax code.

Fox News:

Boehner dismisses Obama's position on fiscal crisis as 'not sustainable'. House Speaker John Boehner dismissed President Obama’s position on the fiscal crisis as “not sustainable” Tuesday, only hours after Obama held a non-press conference to say he was willing to compromise but not negotiate. "What the president said today was, if there's unconditional surrender by Republicans, he'll sit down and talk with us. That's not the way our government works," Boehner said. The speaker said he wants conversations about spending cuts to start "now," not "next week" or "next month."

CNBC:

Boehner: Can't raise debt ceiling without addressing borrowing. (video) House Speaker John Boehner on Tuesday said he was disappointed with what he called President Barack Obama's refusal to negotiate on a government budget.

Chesapeake Energy(CHK) cuts 800 employees.

Zero Hedge:

Alcoa(AA) "Beats" With 80% Of "Earnings" Due To Restructuring Add Backs.

Picturing The Slow Rise And Quick Fall Of Fed Credibility. (graph)

California Admits Only 1.65% Of Exchange Visitors Signed Up For Obamacare.

Meet The Disability-Industrial-Complex: Up To 45% On Disability Insurance Are Frauds.

White House Set To Announce Yellen Fed Nomination Tomorrow.

ValueWalk:

Tesla(TSLA), Facebook(FB), Netflix(NFLX), LinkedIn(LNKD): 4 Horsemen Of The New Tech Bubble.

Business Insider:

Apple(AAPL) Will Announce New iPads On October 22.

Washington Post:

U.S. plans to curb military aid to Egypt. The Obama administration is expected to announce curbs on most nonessential military aid to Egypt within a few days, a U.S. official said Tuesday, marking a stunning turnaround for U.S. relations with one of its key Arab allies. The official would not provide details or figures about the aid to be suspended, but the action is likely to cover most of the $1.2 billion in military assistance to Egypt. The official spoke on the condition of anonymity because Congress has not been fully notified, and the announcement could be postponed.

Reuters:

Obama would veto bill for new deficit-reduction panel -White House. U.S. President Barack Obama would veto a bill passed by the House of Representatives to create a bipartisan panel that would make recommendations on reducing the country's deficit and examine the debt limit, the White House said on Tuesday.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

US drone market comes under fire as it tries to take off.

Telegraph:

IMF sours on BRICs and doubts eurozone recovery claims. Fund admits that emerging markets have exhausted catch-up growth models.

China Securities Journal:

China Must Manage Property Market Expectations. China must manage expectations about rising prices to stabilize the property market, a front-page commentary by reporter Zhang Min said. Information on property market polices should be clearly provided as soon as possible to prevent expectations of policy loosening.

Evening Recommendations
Piper Jaffray:

Raised (KORS) to Overweight, target $90.

Lowered (RL) to Neutral, target $170.