Friday, June 04, 2010

Friday Watch


Evening Headlines

Bloomberg:
  • Loan Selloff Forcing Borrowers to Boost Rates: Credit Markets. Calpine Corp.(CPN), the largest U.S. generator of natural-gas-fueled electricity, and at least five other borrowers are being forced to boost interest rates on proposed loans after the market’s worst month since 2008. The margin Calpine offered to pay over lending benchmarks for a $1.3 billion loan increased by as much as 2 percentage points to 5.5 percentage points, while the remaining companies had to raise rates from 0.75 percentage point to 4.5 percentage points, according to people familiar with the talks who declined to be identified because the terms weren’t set. For Houston- based Calpine, that’s an extra $26 million a year in interest. Prices of high-yield, high-risk loans fell 3.89 percent during last month as measured by the S&P/LSTA U.S. Leveraged Loan 100 Index as investors fled all but the safest government securities amid growing concern that rising budget deficits in Europe will cause the global economy to slow. The Federal Reserve said that U.S. commercial paper outstanding fell to the lowest on record. The U.S. market for short-term IOUs, commercial paper, declined $10.2 billion to $1.06 trillion in the week ended June 2, the lowest since at least 1999, data compiled by Bloomberg show. Without seasonal adjustment, debt outstanding fell $5.5 billion, the fifth straight week of declines, to $1.05 trillion, also the lowest on record. In Europe, financial companies’ overnight deposits with the European Central Bank rose to a record amid bank wariness of lending to each other during the continent’s sovereign debt crisis. Banks placed 320.4 billion euros ($389.9 billion) in the ECB’s overnight deposit facility at 0.25 percent, compared with 316.4 billion euros on June 2, the central bank said. That’s the most since the introduction of the euro in 1999. “The news flow over the past few weeks has spooked banks and since nobody knows how exposed individual financial institutions are, it’s deemed safer to park cash with the ECB rather than lend it on,” said Norbert Aul, an interest-rate strategist at Commerzbank AG in London.
  • California Teachers Fund to Use Commodities to Hedge Inflation. The California State Teachers’ Retirement System, the second-biggest U.S. public pension fund, agreed to begin investing in commodities as a hedge against inflation and to buffer losses in equities.
  • Krugerrand Output Jumps to 25-Year High on European Debt Crisis. Rand Refinery Ltd., the world’s largest gold-smelting facility, raised production of Krugerrand coins to a 25-year high as Europe’s sovereign-debt crisis boosted investor demand for bullion. Output last week jumped 50 percent to 30,000 ounces of blank coins for minting by SA Mint, Debra Thomson, Rand Refinery’s treasurer, said by telephone from Johannesburg today. That was the highest weekly production since 1985, she said. Demand is coming mostly from Germany, Thomson said.
  • Jindal Challenges Obama Drill Ban, Cites Loss of 20,000 Jobs. Louisiana Governor Bobby Jindal, whose state is bearing the brunt of the environmental damage from BP Plc’s Gulf of Mexico oil spill, challenged President Barack Obama’s decision to suspend deepwater drilling for six months. The moratorium may cost the state as many as 20,000 jobs in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” Jindal said in a letter to Obama released today. Two thirds of the rigs subject to a ban are in Louisiana’s coastal waters, the governor said. A longer interruption could crimp U.S. oil-and-natural gas production, raising energy prices and costing jobs, lawmakers have said. “The last thing we need is to enact public policies that will certainly destroy thousands of existing jobs while preventing the creation of thousands more,” Jindal said in a statement. The moratorium will shut 33 deepwater rigs in the Gulf of Mexico, including 22 near Louisiana, costing as many as 6,000 jobs in the next three weeks and 20,000 by the end of next year, Jindal said. Each platform that is idled puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group that represents drillers and companies that support oil production. Lost wages could reach $10 million a month for each rig. “Shutting down the outer continental shelf, all that’s going to do is raise energy prices and cost American jobs,” U.S. Representative Joe Barton, a Texas Republican, said in an interview. “The right course is to continue the permitting process and become more diligent in the inspection and enforcement of existing wells.” One third of U.S.-produced oil and gas comes from the Gulf, and 80 percent of Gulf oil is extracted from deepwater wells, according to the Baton Rouge, Louisiana-based Mid-Continent Oil and Gas Association. The suspension will hurt rig owners, supply boats, welders, divers, caterers and other supporting contractors. About 80,000 barrels of new daily production, or 4 percent of deepwater Gulf output, will be delayed until after 2011 because of the ban, according to a May 28 report by Edinburgh- based Wood Mackenzie Consultants Ltd. The total may be as high as 130,000 barrels a day, according to Kevin Book, a managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm. The U.S. would spend $10 billion to buy imported oil through the end of 2011 to replace lost Gulf production, Book said in an e-mail. Companies probably will ship their rigs to the coasts of Brazil and China or to the North Sea in Europe to avoid sitting idle in the Gulf, he said. The moratorium will cost the government as much as $150 million in lost royalty payments as production of oil and gas stops, Gerard said.
  • G-20 Split on Increasing Bank Capital, Official Says. The Group of 20 nations is split on the scale and timing of increases in bank-capital requirements that have been under discussion since governments were forced to bail out lenders, an official from a G-20 government said. Countries such as the U.S. whose economies are largely financed by markets want banks to be required to hold more assets on their balance sheets to buffer against future crises, said the official, who will attend this weekend’s talks of G-20 finance chiefs in Busan, South Korea. Policy makers in continental Europe, where banks provide more financing, are concerned that too-high reserves risk choking off growth, the official told reporters on condition he not be named.
  • Meirelles Says Brazil Central Bank in Tightening Mood. Brazil central bank President Henrique Meirelles said the nation’s policy makers are already in a “tightening mood” as they work to keep inflation within their target range. “We are committed to keeping inflation on target,” Meirelles said today in a Bloomberg Television interview from Busan, South Korea. “We have exited from all the liquidity measures which were taken” during the financial crisis, and “we are taking the necessary steps to make sure the Brazilian economy is all balanced,” he said. “We are already in a tightening mood,” said Meirelles in Busan, where he is attending a gathering of Group of 20 finance ministers and central bank officials. Inflation, as measured by the government’s benchmark IPCA- 15 price index, was 5.26 percent in the 12 months through mid- May, the highest rate in a year. Annual price increases have exceeded the government’s target in each month this year.
  • The Australian dollar may drop toward its weakest in one year after completing so-called death cross and double-top formations on technical charts that analysts use to predict currency movements. The Aussie's 50-day moving average, currently at 89.50 U.S. cents, fell below the 200-day measure of 89.84 cents this week, triggering a "bearish signal," said Niall O'Connor, a technical analyst at JPMorgan Chase(JPM) in New York. The same formation in September 2008 heralded a 26% slide within eight weeks to a five-year low. The Aussie may slide 9% in three weeks after completing a double-top, said Barclays Capital, the world's third-largest currency trader. "You have a pretty substantial double-top formation that effectively completed on the break below 86 cents back on May 19," he said. "That suggests we're going to see a move to about 77 U.S. cents. Additionally you have base metals, which is a big proportion of what drives Aussie under significant pressure, so that's certainly going to hurt it as well." The London Metals Index, tracking the prices of copper, aluminum, lead, tin, zinc and nickel, dropped 2.3% yesterday, falling for a fourth straight session.
  • Japan's Recovery to Slow as BOJ Tarries, Morgan Stanley Says. Japan’s recovery is poised to slow as a leadership change in the government distracts from pressure on the central bank to step up efforts to defeat deflation, said Morgan Stanley’s Robert Feldman.
  • Bernanke Says Unemployment Takes a Toll on Families. said he’s concerned about the toll that joblessness is taking on Americans and that the central bank is trying encourage lending to creditworthy companies.Federal Reserve Chairman Ben S. Bernanke “High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole,” Bernanke said today at a Fed-hosted forum in Detroit, where the jobless rate exceeded 24 percent in April.
  • The euro may re-test a four-year low versus the dollar after failing to rebound on a so-called double bottom trading pattern, according to FXPrime Corp. The 16-nation currency last week fell back through double-bottom levels after initial gains that had the potential to be the first signs of a technically driven rebound, Hiroshi Yanagisawa, a Tokyo-based dealer at the foreign-exchange unit of Japanese trading house Itochu Corp. said in an interview. That opens the way for renewed weakness in the currency, he said. "The failure to rebound after forming a double bottom blew off positive technical signals for the currency," he said. "The euro is likely to resume a downtrend and re-test a 50% Fibonacci retracement line from a historical high."
  • Imports of soybeans into China's Shandong province ports are being held up as storage capacity is "full," the China National Grain & Oils Information Center said today.
  • Obama Heads to Gulf as Spill 'Furor' Targets White House.
Wall Street Journal:
  • Oil Pipe Cut in Effort to Contain Spill. Undersea Progress Raises Hopes Crude Can Be Captured, as Bill From Government, Rating Cuts Compound BP's(BP) Struggle.
  • Model Suggests Slick Could Zoom Up East Coast. New supercomputer studies suggest it is "very likely" ocean currents will carry oil from the Deepwater Horizon spill in the Gulf of Mexico around the tip of Florida and thousands of miles up the U.S. East Coast this summer, researchers announced Thursday. "It is truly a simulation, not a prediction," said Terry Wallace, principal associate director for science, technology and engineering at the Los Alamos National Laboratory in New Mexico, which collaborated on the project. "But it shows that when you inject something into the Gulf, it is likely to have much larger consequences."
  • South Korea's Lee to Press North on Nukes. South Korean President Lee Myung-bak, in a speech at a security conference in Singapore, on Friday will urge Pyongyang to give up nuclear weapons and encourage other countries not to accept North Korea as a nuclear state.
  • Reclusive Turkish Imam Criticizes Gaza Flotilla. Imam Fethullah Gülen, a controversial and reclusive U.S. resident who is considered Turkey's most influential religious leader, criticized a Turkish-led flotilla for trying to deliver aid without Israel's consent.
  • Fast Traders' New Edge. Some fast-moving computer-driven investment firms are getting an edge by trading on market data before it gets to other investors, according to market players and researchers who have studied the trading. The firms gain that advantage by buying data from stock exchanges and feeding it into supercomputers that calculate stock prices a fraction of a second before most other investors see the numbers. That lets these traders shave pennies per share from trades, which when multiplied by thousands of trades can earn the firms big profits.
  • Sebelius Defends Medicare Nominee. Health secretary Kathleen Sebelius Thursday rejected criticism of the Obama administration's nominee to run Medicare and Medicaid, saying Republicans were being unfair to Donald Berwick and she was confident he would be confirmed. Dr. Berwick, a Harvard pediatrician and health-quality advocate, has come under sharp attack from Republicans over his ties to Britain's national health system and past writings about how to make health care more efficient. The fight has replayed themes from the battle over health-overhaul legislation Congress passed in March, and it affects one of the most critical jobs for implementing that measure. The Centers for Medicare and Medicaid Services runs government-insurance programs for tens of millions of elderly and poor Americans.
  • What BP(BP) Is Doing About the Gulf Gusher by Tony Hayward.
Bloomberg Businessweek:
  • Connecticut Rating Cut by Fitch Ahead of Debt Sale. Connecticut, the state with the highest tax-supported debt, had its bond rating lowered one level to AA by Fitch Ratings as it prepares to borrow money to cover a budget deficit for a second straight year. The state, whose residents are the wealthiest in the U.S., relies “on borrowing to address its ongoing fiscal challenges in the context of already high liabilities and large projected structural gaps,” Fitch analysts Doug Offerman and Laura Porter wrote in a press release today. Connecticut is preparing to borrow $956 million to close a budget gap in the fiscal year beginning July 1, after borrowing money last year to cover a deficit of $947.6 million, the analysts said. Lawmakers also chose to draw down the state’s rainy-day fund and raise the top income tax for residents after tax collections fell almost 15 percent in the year ending June 30, 2009, according to Fitch. “The downgrade reflects the state’s reduced financial flexibility, illustrated by its reliance on sizable debt issuances during the current biennium to close operating gaps in the context of already high liabilities,” Fitch said. A biennium refers to Connecticut’s two-year budgeting cycle. Connecticut has the highest net tax-supported debt among the 50 states, according to Moody’s. The state is also the wealthiest with per capita personal income of $54,397 in 2009, according to Department of Commerce data.
CNBC:
  • Increasingly Hawkish Fed Ponders Raising Rates. Three top Federal Reserve officials said on Thursday it may soon be time to begin raising interest rates as the economic recovery in the United States gathers momentum, despite persistently high unemployment.
  • Warren Buffett's Anti-Competitive Profits. We learned something important at Wednesday's Financial Crisis Inquiry Commission: the power of the duopoly privilege enjoyed by Moody’s and Standard & Poor’s is what drew Warren Buffett to make his Berkshire Hathaway, the biggest shareholder in Moody’s.
Zero Hedge:
  • Dallas Fed's Fisher Rages Against Too Big To Fail, Says Only Way to Remove Systemic Risk is Shrinking the Megabanks.
  • Recapping the SEC's High Frequency Trading Panel. Yesterday's SEC panel discussion on HFT was largely uncovered by the media, as it was for the most part a one-sided, lobbying effort of the HFT industry to make it seem that all is good with the market and to make it explicit that "once in a lifetime" events like the May 6th 1,000 point crash don't really occur and what was experienced (and will be again quite soon) was a statistical impossibility. Tell that to all those who got stopped out by the market's arbitrary 60% cut off for DK'ed trades and lost millions. For a good, clean, simplistic perspective on HFT, we present this most recent summary piece by the Daily Finance's Peter Cohan, called "What you need to know about HFT."
CNNMoney:
Resource Investor:
  • Eurozone Credit Crunch & Shanghai Shakeout. Until mid-April, few traders knew much about the credit default swap (CDS) markets. They’re traded on an unregulated, over-the-counter market, and far from the public’s view. Yet nowadays, the CDS market has become a major battleground between high-stakes speculators and Euro-zone politicians, with the fate of the Euro currency hanging in the balance. In turn, the violent swings in the CDS markets are having a profound impact on the global bond, commodity, currency, and stock markets.
ABC News:
  • Fed Lends $6.64 Billion in 'Swap' Program. The Federal Reserve says it lent $6.64 billion through a program aimed at easing strains from the European debt crisis. Most of the money — $6.4 billion — went to the European Central Bank. The rest went to the Bank of Japan. The Fed is lending much-in-demand dollars to other central banks in exchange for their currencies. In turn, the central banks can lend the dollars out to banks in their home countries to prevent the crisis from spreading further.
Calculated Risk:
Politico:
  • Reid Calls for Sweeping Energy Bill. Majority Leader Harry Reid (D-Nev.) is calling on the Senate's key committee leaders to come up with a comprehensive energy strategy by July 4, accelerating the push for legislation in wake of the worst oil spill in American history. "It is extremely important that you each examine what could be included in a comprehensive energy bill that would address the unfolding disaster in the Gulf of Mexico," Reid wrote to chairmen who oversee the nation's energy policies. "The economic, social and environmental devastation occurring there now due to the oil pollution is unprecedented." Committee leaders Max Baucus, Jeff Bingaman, Barbara Boxer, Chris Dodd, Patrick Leahy, Joe Lieberman, Blanche Lincoln and John Rockefeller all received the majority leader's letter and have been asked to contribute their ideas to developing a blue print for a comprehensive bill. A democratic aide close to the situation said Thursday's letter "is largely in response to the situation in the gulf" and that Reid will meet with the chairmen next week to discuss a way forward. Reid emphasized the particular need to hold oil companies more accountable in the case of disasters like the April 20 deepwater rig explosion that is leaking thousands of barrels of oil into the Gulf daily.
Huffington Post:
USA Today:
Reuters:
  • Fox Leads Charge in TV Deals. U.S. broadcast networks have made significant headway in clinching billions of dollars worth of advertising deals for the upcoming TV season, with Fox said to be leading the charge by nearly completing its dealmaking. According to advertising executives, the News Corp unit has locked up contracts with advertisers at prices running 8 percent to 9 percent above those from a year ago, and could complete its negotiations by Friday or early next week.
  • Now May Be Good Time for Fed to Sell Assets - Dallas Fed. The European debt crisis, and the investor flight to safe-haven U.S. government debt it has prompted, has handed the Federal Reserve an opportunity to shrink its bloated balance sheet and turn a profit at the same time, the Dallas Fed's head of research said on Thursday.
  • Drilling Halt May Be Worse Than Oil Spill. A backlash is building against the Obama administration's offshore drilling moratorium, which some argue worsens the harm to a Gulf Coast economy already losing fishing and tourism business to the oil spill.
  • Small US Businesses Less Optimistic on Hiring. Weak sales will keep hiring by small U.S. businesses subdued for a while even as their larger counterparts increase payrolls, according to a survey on Thursday. The National Federation of Independent Business (NFIB) said its measure of average employment per firm recorded a seasonally adjusted loss of 0.5 workers in May. The measure has been negative every month since January 2008. It also noted that most of the 823 businesses in the survey, conducted through May, reported they did not change employment, while 8 percent increased average employment by 2.5 workers. However, about 20 percent reduced their workforces by an average of 4.0 employees.
Telegraph:
  • Bank of England: 'Inflation not the way out of debt'. No one should fool themselves into believing that Britain can inflate its way out of its public debt mountain, the Bank of England's deputy governor has warned. In an opinion piece for Telegraph.co.uk on Friday, Mr Bean writes: "Some people have suggested that a bit of extra inflation now might actually be a good thing. After all, wouldn't it help to get the economy going by reducing the real value of public and private debt? This is severely misguided. "Aside from the dubious morality of redistributing wealth from savers to borrowers, we have seen from past experience that a bit of inflation has a nasty habit of turning into a lot of inflation." He said the MPC should stick to its 2pc inflation target.
  • Britain Risks Default Unless Government Cuts Public Sector Pensions.
  • If the European Climate Turns Nasty, The ECB Could Suffer From Exposure. The European Central Bank (ECB), that one-time paragon of sound money, has capital and reserves of €77.3bn (£66bn). But thanks to events in Greece, it is now supporting lending to Hellenic banks of €88.4bn, or at least it was at the end of April. Quite where that has got to by now is anybody's guess. And that April figure is a €17.8bn increase on the March total, according to Simon Ward, chief economist at Henderson Global Investors. On top of that exposure, the ECB has also taken on an extra €25bn through its buying of Greek government bonds. So the ECB's Greek exposure is bigger, by some margin, than its own capital and reserves. You will be reassured to learn that the Frankfurt-based central bank has taken Greek collateral to back these loans and insisted that collateral suffers a suitable discount, or haircut, in value to reflect the risk of default. What we don't know is what that haircut is, and how realistic it is, given the sensitive politics surrounding EU-Greece relations. So far the ECB has yet to make a call for more capital to support its lending operations to distressed European financial systems. But if a run on banks, as witnessed recently in Greece, is repeated in countries such as Italy, Portugal and Spain because confidence in institutions wavers further, this situation will change as a full scale banking bail out gathers pace.
Wen Wei Po:
  • The People's Bank of China may raise interest rates in the coming month to contain rising inflation, citing UBS AG economist Wang Tao. The inflation rate in China may surge to 4% in the coming months, Wang said.
Ming Pao Daily News:
  • Factories operating in the Pearl River Delta industrial region of southern China reported a 17% increase in wage levels in the past six months, citing a survey by the Hong Kong Trade Development Council.
Shanghai Securities News:
  • China's property developers may owe a combined $27.5 billion of unpaid value-added land taxes from last year, citing estimates by Shenzhen World Union Properties Consultancy Co.
Evening Recommendations
Citigroup:
  • Upgraded (FE) to Buy, target $39.
Night Trading
  • Asian indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 135.0 +2.0 basis points.
  • S&P 500 futures -.19%.
  • NASDAQ 100 futures -.22%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
8:30 am EST
  • The Change in Non-farm Payrolls for May is estimated at 536K versus 290K in April.
  • The Change in Private Payrolls for May is estimated at 180K versus 231K in April.
  • The Unemployment Rate for May is estimated at 9.8% versus 9.9% in April.
  • Average Hourly Earnings for May is estimated to rise +.1% versus unch. in April.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Treasury's Geithner speaking, ASCO, (WMT) shareholders meeting, Goldman Sachs Basic Materials Conference, RBC Consumer/Retail Conference and the Sanford C. Bernstein Strategic Decisions Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

Thursday, June 03, 2010

Stocks Near Session Highs on Tech Sector Optimism, Short-Covering, Less Economic Fear


Broad Market Tone:

  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 29.69 -1.59%
  • ISE Sentiment Index 85.0 +5.0%
  • Total Put/Call 1.01 +13.48%
  • NYSE Arms .99 +253.86%
Credit Investor Angst:
  • North American Investment Grade CDS Index 116.80 bps -3.49%
  • European Financial Sector CDS Index 157.96 bps -.04%
  • Western Europe Sovereign Debt CDS Index 150.0 bps -.22%
  • Emerging Market CDS Index 273.22 bps -.19%
  • 2-Year Swap Spread 44.0 +1 bp
  • TED Spread 41.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% -1 bp
  • Yield Curve 255.0 +2 bps
  • China Import Iron Ore Spot $147.20/Metric Tonne +1.24%
  • Citi US Economic Surprise Index +14.80 -1.0 point
  • 10-Year TIPS Spread 2.08% +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -24 open in Japan
  • DAX Futures: Indicating +13 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Biotech, Medical and Technology long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 recoups mid-day losses despite some very negative headlines. On the positive side, Gaming, HMO, Disk Drive, Semi and Internet stocks are especially strong, rising 1.5%+. Small-cap shares are outperforming again. Tech stocks have been leaders throughout the day. The Spain sovereign cds is falling -3.7% to 243.56 bps and the Portugal cds is declining -4.02% to 332.9 bps. On the negative side, Gold, Coal, Bank and Homebuilding shares are under pressure, falling more than .75%. (XLF) has been heavy throughout the day. Red flags abound, but the market is showing exceptional resilience. The euro trades like another disorderly decline is coming, the Shanghai Composite fell -.7% last night despite big gains in most other major global indices, copper is rolling over again, some market leaders are stalling, the TED spread continues to grind to new 52-week highs, the Greece sovereign cds is rising to its highest level since May 10 at 776.0 bps and key cds indices are staying stubbornly high. I suspect recent gains are mainly attributable to short-covering as hedge fund market exposure had gotten very low and many expect a blowout jobs number tomorrow. It would be a very good sign for the bulls if the S&P 500 could break above its 200-day moving average convincingly on tomorrow's report. However, unless there is a much better-than-expected surge in private employment(weekly jobless claims have shown no improvement since late December), a sell the news reaction is more likely, in my opinion. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting, rising financial sector pessimism and euro worries.

Today's Headlines


Bloomberg:

  • U.S. Considering China Yuan Probe, Locke Letter Says. The U.S. is considering investigating charges from U.S. businesses that the undervalued Chinese currency is an illegal trade subsidy, Reuters reported, citing a letter from U.S. Commerce Secretary Gary Locke.
  • The Baltic Dry Index, a measure of commodity shipping costs, declined for a fifth session in London as grain shipments weakened and the market reacted to a drop in freight derivative contracts yesterday. The index fell 2.7% to 3,933 points, according to the Baltic Exchange. The largest decline was for iron ore-carrying capesizes and charter rates for all vessel sizes tracked by the exchange fell. Forward freight agreements, contracts to bet on, or hedge, future charter costs for capesizes, fell 3% to $50,906 a day yesterday for April-to-June. Actual charter rates for the ships fell 4.1% to $56,912, it said today. Demand for smaller carriers may be falling because of reduced grain shipments from South America, Jeffrey Landsberg, president of Commodore Research, said by phone from NY.
  • OPEC is set to reduce shipments this month as demand from Europe and the US remains weak, according to tanker-tracker Oil Movements. OPEC will ship 23.47 million barrels a day in the four weeks to June 19, the consultant said. That's down from a revised figure of 23.6 million in the four weeks to June 5. "The indications are that growth is certainly not strong in the West and temporarily not that strong in the East," Oil Movements founder Roy Mason said.
  • EU's Barroso Says 'Hungary Is in a Very Delicate Situation'. European Commission President Jose Barroso warned Hungary against easing up on efforts to cut the budget deficit. “Our message to Hungary and to other countries is that they should accelerate their fiscal consolidation and not to relax consolidation,” Barroso told reporters in Brussels today after meeting Hungarian Prime Minister Viktor Orban. “Hungary is in a very delicate situation, let’s put it clear. No complacency.”
  • Copper Falls Most in a Week on Concern China Demand to Dwindle. Copper prices fell the most in a week on concern that demand for the metal will decline in China, the world’s biggest consumer. Freeport-McMoRan Copper & Gold Inc. and Codelco, the world’s largest producers, said China’s plans to curb its economy threaten to reduce demand. Copper prices are down 20 percent from a 20-month high in April as China acted to cool its property market and Europe struggled with fiscal woes. “China is the biggest user, so any concerns about demand there will continue to be a drag on copper,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York. “People are more concerned about what’s happening overseas in Asia and Europe than with what’s going in the U.S.” Copper futures for July delivery fell 9.4 cents, or 3.1 percent, to $2.9465 a pound on the Comex in New York, the biggest drop for a most-active contract since May 25.
  • Lockhart Says Rates May Rise With Unemployment High.
  • U.S. States Plan More Spending Restraint Amid Curtailed Revenue. U.S. states reduced spending for a second consecutive year as the worst U.S. recession since the 1930s cut tax revenue, a survey by two associations found. Governors may struggle to raise spending in fiscal 2011, which begins July 1 for 46 states, as they close deficits without the aid of federal stimulus money that runs out this year, the report by the National Governors Association and National Association of State Budget Officers said.
  • North Korea Says War With South Korea Could Begin 'Any Moment'.
  • Offshore Drilling Applications Must Be Resubmitted, U.S. Says. Oil and gas producers seeking permission to drill in Gulf of Mexico waters less than 500 feet deep must resubmit plans to comply with new safety and environmental requirements, the U.S. Interior Department said. The Obama administration is “pulling back” exploration plans and requiring updated information to “ensure that new safety standards and risk considerations are incorporated,” said Bob Abbey, acting director of the Minerals Management Service, in a statement.
  • Congress Prepares Bill to Remove BP Liability Limit.

Wall Street Journal:
CNBC:
  • Knight Capital Group Inc. CEO Thomas Joyce said about 40,000 trades were adjusted on May 6 "because the prices were wrong" after the DJIA temporarily plunged almost 1,000 points.
NY Times:
  • $239,000 Conductor Among M.T.A.'s 8,000 Six-Figure Workers. In an era of generous municipal salaries and union-friendly overtime rules, it may not come as a complete shock that there are thousands of Metropolitan Transportation Authority employees — 8,074, to be precise — who made $100,000 or more last year.
IBD:
Washington Times:
  • Federal Debt Tops $13 Trillion Mark. The federal government is now $13 trillion in the red, the Treasury Department reported Wednesday, marking the first time the government has sunk that far into debt and putting a sharp point on the spending debate on Capitol Hill. Calculated down to the exact penny, the debt totaled $13,050,826,460,886.97 as of Tuesday, leaping nearly $60 billion since Friday, the previous day for which figures were released. At $13 trillion, that figure has risen by $2.4 trillion in about 500 days since President Obama took office, or an average of $4.9 billion a day. That's almost three times the daily average of $1.7 billion under the previous administration, and led Republicans on Wednesday to place blame squarely at the feet of Mr. Obama and his fellow Democrats.
Beet.TV:
Washington Examiner:
  • Mexico Opens California Office to Provide ID for Illegals. The Mexican government is opening a satellite consular office on Catalina Island -- a small resort off the California coast with a history of drug smuggling and human trafficking -- to provide the island's illegal Mexican immigrants with identification cards, The Washington Examiner has learned. The Mexican consular office in Los Angeles issued a flier, a copy of which was obtained by The Examiner, listing the Catalina Island Country Club as the location of its satellite office. It invites Mexicans to visit the office to obtain the identification, called matricular cards, by appointment. Rep. Dana Rohrabacher, a Republican whose district includes Catalina Island, said handing out matricular cards will exacerbate an already dangerous situation. "Handing out matricular cards to Mexicans who are not in this country legally is wrong no matter where it's done," he said. "But on Catalina it will do more damage. It's a small island but there's evidence it's being used as a portal for illegals to access mainland California." Rohrabacher added, "If there were a large number of Americans illegally in Mexico and the U.S. consulate was making it easier for them to stay, Mexico would never permit it." The matricular consular identification card, is issued by the Mexican government to Mexican nationals residing outside the country, regardless of immigration status. The purpose is to provide identification for opening bank accounts and obtaining other services. But the cards are usually used to skirt U.S. immigration laws, since Mexicans in the country legally have documents proving that status, Immigration and Customs Enforcement officials said.
Boston Herald:
  • Mass. Home Deals Slip in May. In the first sign that home sales have suffered since the expiration of the $8,000 tax credit, pending sales were off in May for the first time in 10 months, according to the Massachusetts Association of Realtors. “It’s payback,” said Gus Faucher of Economy.com. “You’re seeing a temporary weakness in sales thanks to the expired tax credit, because people who would have bought in summer got pushed up to meet the deadline.” The number of single-family homes put under agreement last month slipped 3 percent to 4,663, compared to a year ago. Condominiums put under agreement in May fell by 6 percent to 1,894.
The Baltimore Sun:
  • Computer Simulates Gulf Oil Flow into Atlantic(video). Scientists at the National Center for Atmospheric Research (NCAR) have conducted computer simulations to suggest how oil from the BP Deepwater Horizon blowout in the Gulf of Mexico might flow into the Atlantic Ocean in the coming weeks. As has been suggested before, the researchers concluded that once the oil is swept up in the Gulf's fast-moving Loop Current, it will move quickly beyond the Gulf, in to the Gulf Stream, up the East Coast to Cape Hatteras, and from there far out into the Atlantic.
Military.com:
  • US May Send Aircraft Carrier to Korea. The United States is considering dispatching the massive aircraft carrier USS George Washington to the waters where North Korea allegedly sank a South Korean warship, defense officials said Wednesday. The deployment of the nuclear-powered carrier, one of the world's largest warships, would represent a major show of force by the U.S., which has vowed to protect South Korea and is seeking to blunt aggression from North Korea.
Politico:
  • White House Admits Effort to Avoid Primary. The White House acknowledged having made overtures to Colorado Senate candidate Andrew Romanoff about a possible administration appointment Thursday, the morning after the former state legislator said White House deputy chief of staff Jim Messina offered to consider Romanoff for three posts as an alternative to his Senate campaign.
Institutional Investor:
Huffington Post:
  • Summers Hears From Unions On Wall Street Reform. The White House is confident that a strong Wall Street reform package will emerge from conference committee negotiations between the House and Senate, senior administration officials told unions and consumer groups at a high-level meeting in the Old Executive Office Building Wednesday. Senior economic adviser Larry Summers; his deputy, Diana Farrell; and Eric Stein, Treasury's deputy secretary for consumer protection, met with the AFL-CIO, SEIU, consumer groups and other progressive organizations to update them on the status of negotiations and hear out remaining concerns.

Financial Times:
  • CFTC Chief Presses for Derivatives Transparency. Gary Gensler, chairman of the Commodity Futures Trading Commission, said on Thursday that moves by the derivatives industry to provide increased information about trades to regulators were “not enough”. Mr Gensler, who has emerged as a strong critic of the banks that dominate derivatives markets, said there needed to be more. “Bringing transparency to the regulators, however, is not enough,” he said at a conference organised by Sandler O’Neill. “We must also bring transparency to the public.” He said the OTC derivatives must become similar in transparency to the futures and securities markets. “The more transparent a marketplace, the more liquid it is and the more competitive it is and the lower the costs for hedgers, borrowers and, ultimately, their customers,” he said in prepared remarks. Mr Gensler said when Wall Street dealers enter into derivatives transactions with their customers, they benefit from knowing how much their last customer paid for the same deal, but such information is not publicly available. “They benefit from internalising this information,” he said. “The buyer and seller never meet in a centralised market. The lack of transparency enables Wall Street to profit from wider spreads between bids and offers.” “Transparency narrows bid-ask spreads and benefits the users of derivatives contracts,” Mr Gensler said. “That may be why some of the major Wall Street firms have been opposed to a trading requirement.” He added: “They have estimated that if the derivatives reform becomes law, they could lose billions in revenue – billions that their customers could save by getting better pricing on their derivatives transactions.” Mr Gensler also focused on the exemption clause from clearing when banks transact swaps with their end-user customers - one of the key items that will be debated as the financial reform legislation enters its next phase. “We should ensure that this exemption is not so broad that it includes transactions between two financial entities,” he said, noting data from the Bank of International Settlements which shows just 8 per cent, or $35,607bn, of interest rate swaps transactions were between non-financial entities and dealers. "As long as financial entities remain interconnected through their derivatives, one entity’s failure could mean a run on another financial entity and a difficult decision for a future Treasury secretary,” said Mr Gensler. “Every exemption for financial companies creates a link in the chain between a dealer’s failure and a taxpayer bailout.”
Telegraph:
  • The Gamblers Betting on Britain Going Bust. Hedge funds are wagering billions on the UK defaulting, says Edmund Conway. A small band of hedge funds is now building up a series of sizeable bets on Britain defaulting. In the past few weeks, they have placed more than $3 billion worth of bets on that precise outcome in the credit default swap market. History – three centuries without default – suggests that they will be proved wrong. But these are unprecedented times. Had Britain joined the euro, it would certainly have shared Greece's fate, and would have been too big to be bailed out. Avoiding euro membership, however, will not guarantee that Britain avoids default. We cannot afford to be smug for ever.
Financial Times Deutschland:
  • German Finance Minister Wolfgang Schaeuble has proposed increasing the so-called solidarity tax from 5.5% to 8%.
Nikkei:
  • There is a risk that the euro zone financial crisis could spread to the UK and the US unless Europe moves to normalize its banking system, Bank of England Monetary Policy Committee Member Adam Posen said. Banks in the euro zone need to become healthier, he said.

Bear Radar


Style Underperformer:

  • Large-Cap Value (-.29%)
Sector Underperformers:
  • Coal (-4.09%), Gold (-2.35%) and Oil Service (-1.53%)
Stocks Falling on Unusual Volume:
  • PCLN, XEC, SM, GOLD, PUK, DLLR, PRXL, WPRT, UEIC, SHPGY, SCVL, THOR, BUCY, MATW, HMIN, COST, TSCO, CTRP, ACLI, AMGN, CAVM, BECN, GIFI, EDMC, DMND, WDR, TUC, IYM and FDO
Stocks With Unusual Put Option Activity:
  • 1) TLAB 2) FMCN 3) AMAT 4) SWN 5) VMW
Stocks With Most Negative News Mentions:
  • 1) BP 2) NYT 3) AEO 4) RAD 5) JCP

Bull Radar


Style Outperformer:

  • Small-Cap Growth (+.86%)
Sector Outperformers:
  • HMOs (+1.95%), Gaming (+1.69%) and Semis (+1.41%)
Stocks Rising on Unusual Volume:
  • KB, CSTR, VRSN, WBSN, SNWL, ROST, OVTI, LULU and BEZ
Stocks With Unusual Call Option Activity:
  • 1) TLAB 2) KR 3) FNSR 4) CROX 5) JOYG
Stocks With Most Positive News Mentions:
  • 1) NOK 2) TGT 3) JOYG 4) AAPL 5) LTD

Wednesday, June 02, 2010

Stocks Surging into Final Hour on Less Economic Fear, Less Energy Sector Pessimism, Short-Covering, Bargain-Hunting


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 30.76 -13.45%
  • ISE Sentiment Index 75.0 -33.04%
  • Total Put/Call .89 +1.14%
  • NYSE Arms .36 -88.69%
Credit Investor Angst:
  • North American Investment Grade CDS Index 121.02 bps +.28%
  • European Financial Sector CDS Index 159.30 bps +1.22%
  • Western Europe Sovereign Debt CDS Index 150.33 bps +13.46%
  • Emerging Market CDS Index 277.07 bps -1.83%
  • 2-Year Swap Spread 43.0 -2 bps
  • TED Spread 40.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .14% -1 bp
  • Yield Curve 253.0 +4 bps
  • China Import Iron Ore Spot $145.40/Metric Tonne +.97%
  • Citi US Economic Surprise Index +15.80 -2.3 points
  • 10-Year TIPS Spread 2.04% +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating +187 open in Japan
  • DAX Futures: Indicating +29 open in Germany
Portfolio:
  • Higher: On gains in my Biotech, Medical, Retail and Technology long positions
  • Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite rising sovereign debt angst and mostly weaker European shares. On the positive side, Airline, Hospital, Biotech, Semi, Steel, Oil Service, Energy, Oil Tanker and Coal stocks are significantly higher on the day, rising 3.0%+. Small-cap and cyclical shares are outperforming. Weekly retail sales rose +2.7% this week versus a +2.8% rise the prior week. This is down from a +3.9% increase the first week of April, but up from a +2.4% gain the first week of May. On the negative side, Education, Retail, REIT, Telecom and Defense shares are underperforming. (IYR) has underperformed throughout the day. Most cds indices are rising today, with the big jump in the Western Europe Sovereign CDS Index being an especially large negative. Copper isn't participating in today's equity rally. As well, the S&P GSCI Ag Spot Index is breaking down further into a bear territory, falling -1.3% and taking out its July 2009 low. This index is now down -21.4% in less than 5 months. It is also noteworthy that Chinese Wholesale Spot Pork is down -15.1% over the last 4 1/2 months and the Chinese government has announced a stockpiling program to prevent further price declines. Much of today's stock rally is related to short-covering and bargain-hunting in the worst-performing stocks. I would like to see the S&P 500 close convincingly above its 200-day moving average, with better volume and leadership and a breakdown in key cds indices before becoming more aggressive on the long side. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less energy sector pessimism, declining economic fear and diminishing financial sector pessimism.