North American Investment Grade CDS Index 83.34 +.71%
European Financial Sector CDS Index 135.05 bps -1.89%
Western Europe Sovereign Debt CDS Index 161.0 bps -3.69%
Emerging Market CDS Index 211.91 -.27%
2-Year Swap Spread 22.0 unch.
TED Spread 16.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 283.0 -1 bp
China Import Iron Ore Spot $185.60/Metric Tonne unch.
Citi US Economic Surprise Index +42.0 +1.6 points
10-Year TIPS Spread 2.34% -2 bps
Overseas Futures:
Nikkei Futures: Indicating +28 open in Japan
DAX Futures: Indicating +6 open in Germany
Portfolio:
Slightly Higher: On gains in my Ag, Biotech and Tech long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower, despite recent equity gains, rising Mideast tensions, emerging markets inflation worries and rising long-term rates. On the positive side, Networking, Disk Drive, Computer, Ag, Oil Service, Oil Tanker and Alt Energy shares are especially strong, rising more than 1.0%. Tech shares have outperformed throughout the day. Copper is rising +.18%. The Italy sovereign cds is dropping -4.04% to 157.93 bps, the Portugal sovereign cds is falling -3.31% to 390.58 bps, the Hungary sovereign cds is falling -4.73% to 290.16 bps, the Belgium sovereign cds is declining -4.95% to 149.93 bps and the UK sovereign cds is falling -5.51% to 61.29 bps. Moreover, the US Muni CDS Index is falling -1.97% to 191.25 bps. On the negative side, Airline, Road&Rail, Retail, Homebuilding, Insurance and Coal shares are under pressure, falling more than 1.0%. (XLF) is underperforming. The Transports are also relatively weak. The UBS-Bloomberg Ag Spot Index is rising +1.71% to another new record high. Lumber is falling -3.17%. The 10-Year yield is rising +4 bps to 3.48%. The Egypt sovereign cds is rising +7.95% to 377.91 bps, the Saudi sovereign cds is gaining +4.26% to 118.81 bps and the Russia sovereign cds is climbing +1.35% to 144.12 bps. I still expect another push higher in the major averages over the coming days, barring any unexpected spike in energy prices. I expect US stocks to trade mixed-to-higher into the close from current levels on earnings optimism, diminishing eurozone debt angst, stable energy prices and rising economic optimism.
Mubarak Moves to Regain Streets as Turmoil Hits Yemen. Supporters of Egypt’s Hosni Mubarak clashed in central Cairo with demonstrators demanding an end to the 30-year-reign of the president, who said yesterday he won’t step down until an election in September. The two sides hurled rocks at each other in Tahrir Square, the focus of protests since Jan. 25. Mubarak loyalists tried to storm independent newspaper Al-Shorouk’s offices, its editor said, while al-Jazeera reported live rounds were fired. Mohamed ElBaradei, an opposition leader and former United Nations diplomat, told the BBC the army should move in to end unrest incited by a “criminal regime” that “has to go immediately.” “The blood of those demanding democracy is being shed on the streets of Cairo at the hands of armed gangs,” the Cairo- based Arabic Network for Human Rights Information said in a statement on its website.
Muslim Brotherhood Gauges Role in Post-Mubarak Egypt. Egypt’s Muslim Brotherhood didn’t immediately join the spontaneous street demonstrations against President Hosni Mubarak. Now the Islamist group, the country’s largest opposition faction, is positioning itself to help shape the country’s political future. “They are the most organized and most popular, with a hierarchy in Egypt in terms of membership and leadership,” said Omar Ashour, an Egyptian lecturer on Arab politics at the University of Exeter in England. Founded in 1928, the same year Mubarak was born, the Muslim Brotherhood has influenced Islamist movements across the globe, including Hamas in the Palestinian territories, which the U.S., European Union and Israel consider a terrorist organization. “The Muslim Brotherhood is part of Egypt’s people, and we acquiesce in the verdict of the people, whatever it may be,” al-Erian said, adding that the group seeks “a democratic regime with the Islamic Sharia as a reference,” which he said already is enshrined in Egypt’s constitution. Sharia is based principally on laws from the Koran, sayings by the Prophet Mohammed and the opinions of Muslim scholars, and it’s the basis of some areas of Egyptian law though not the penal code. That stance may conflict with other vested interests. Egypt’s military leadership is committed to the foreign policy pursued by Mubarak, who has helped Israel blockade the Hamas- ruled Gaza Strip and sought to rally Arab support against Islamic extremism. The Brotherhood “would be calamitous for U.S. security,” Leslie Gelb, president emeritus of the Council of Foreign Relations in New York and a former U.S. assistant secretary of state, wrote Jan. 29 on the Daily Beast website. The group opposes the Egyptian-Israeli peace treaty of 1979 and “would endanger counterterrorism efforts in the region and worldwide,” he said. “That is a very big deal.” It “supports Hamas and other terrorist groups, makes friendly noises to Iranian dictators and torturers,” and would be “uncertain landlords of the critical Suez Canal,” he added. The canal carries about 8 percent of global maritime trade. The idea that the Brotherhood could hijack the anti-Mubarak rebellion has been dismissed by Mohamed ElBaradei, the former United Nations atomic agency chief and one of the opposition movement’s leaders. Mubarak stoked such fears to perpetuate U.S. support, ElBaradei told ABC News on Jan. 31. “This is what the regime sold to the U.S. and the West: It’s either us and repression, or al-Qaeda type extremist groups,” ElBaradei said of the Brotherhood, describing the group as religiously conservative and nonviolent. “You have to include them.”
Germany Rules Out Bond Buybacks by Bailout Fund, Official Says. Germany ruled out allowing the European Union bailout facility to fund bond buybacks from debt- strapped governments as euro-area officials struggle to narrow differences on a strategy to end the region’s financial crisis. A German government official briefing reporters before a Feb. 4 EU summit said the 440 billion-euro ($607 billion) European Financial Stability Facility lacks the legal authority to purchase the outstanding debt to ease finances of countries including Greece.
ADP Estimates Companies in U.S. Added 187,000 Jobs. Companies in the U.S. added more workers than forecast to payrolls in January, showing a pickup in the labor market, data from a private report showed today. Employment increased by 187,000 last month after a revised 247,000 gain in December that was less than initially estimated, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 140,000 gain last month. “I see a clear pattern of strengthening, acceleration here that is very encouraging,” Joel Prakken, chairman of Macroeconomic Advisers LLC, which produces the figures with ADP, said on a conference call. “The economy is starting to accelerate.”
Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate bonds fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declined 5 basis points to 400, approaching the lowest level since April, according to JPMorgan Chase & Co. prices at 8 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.25 basis points to 95.25, JPMorgan prices show. The cost of protecting bank bonds from default also fell, with the Markit iTraxx Financial Index of 25 banks and insurers down 3.5 at 150.5 and the subordinated index 6 lower at 263.5.
Spanish, Italian, Irish Bonds Advance, Narrowing Yield Spreads With Bunds. Spanish, Italian and Irish government bonds rose, reducing the additional yield investors demand to hold the securities instead of benchmark German bunds. Spanish 10-year bond yields fell 16 basis points to 5.05 percent as of 8:34 a.m. in London. That narrowed the difference in yield, or spread, with similar-maturity bunds to 184 basis points, the least since Nov. 2. Italian 10-year yields dropped 11 basis points to 4.53 percent, equivalent-maturity Irish bond yields fell 10 basis points to 8.93 percent and Belgian 10-year yields slid 11 basis points to 4.12 percent. The yield on 10-year Portuguese bonds fell seven basis points to 6.86 percent.
Ireland's Rating Downgraded One Level to A- By S&P and Faces Further Cuts. Ireland had its credit rating cut one level by Standard & Poor’s and a further downgrade is possible as the government tries to contain bank-rescue costs. The rating was lowered to A- from A, S&P said in a statement from London today. That’s four levels above non- investment grade and the same level as countries including Botswana and Portugal. Ireland remains on “creditwatch with negative implications,” S&P said.
'Toxic' Option-ARM Mortgages Rally as Rising Resets Loom: Credit Markets. Home loans that inflated the U.S. housing bubble by giving borrowers the choice of cutting interest payments in exchange for higher balances are fueling the fastest gains in the mortgage-bond market. Prices for senior bonds tied to option adjustable-rate mortgages, called “toxic” by a government commission, typically jumped 6 cents to 64 cents on the dollar in the past month, according to Barclays Capital. The next best-performing class of home-loan securities without government backing rose 4 cents. Option-ARM debt tumbled to as low as 33 cents in 2009. Rising values show Federal Reserve efforts to stimulate the economy by purchasing an additional $600 billion of Treasuries and holding interest rates near zero percent are driving investors into ever-riskier securities. Bond buyers are overcoming a “mental hurdle” even as the debt is poised to lead a second wave of rising payments for homeowners, according to TCW Group Inc.
Brazil Industrial Output Unexpectedly Shrank for Second Month in December. Brazil’s industrial output unexpectedly fell for a second straight month in December, prompting traders to trim bets on interest rate increases. Output in December fell 0.7 percent from November after a 0.2 percent decline in the previous month, the national statistics agency said today in Rio de Janeiro. Economists had forecast output to expand 0.9 percent, according to the median estimate of 29 analysts in a survey by Bloomberg.
Cotton Rises to Record as Adverse Weather Cuts World Supply. Cotton futures surged to a record on mounting supply concerns after flooding in Pakistan and Australia slashed crops. Cotton futures for March delivery contract rose 3.87 cents, or 2.2 percent, to $1.7609 a pound at 10:55 a.m. on ICE in New York. Earlier, prices climbed to a record $1.7612. The most-active contract advanced 4.5 percent in the previous two sessions. The commodity has more than doubled in the past year.
Sugar Jumps to 30-Year High on Australia, India Supply Concerns. Sugar futures surged to a 30-year high on mounting concern that global supplies will trail demand following crop damage in Australia and India, two of the world’s leading producers. Cyclone Yasi has crossed the coast of Australia’s Queensland state. The storm may cause crop losses of as much as $505 million, a grower group said. Output from India may be less than predicted after heavy rains, a producer organization said. Prices have more than doubled since the end of June. “The cyclone is the story,” said Jason Cole, a broker at Starsupply Renewables SA in Geneva. An extended rally will depend on the severity of the damage, he said. Raw sugar for March delivery climbed 1.23 cents, or 3.6 percent, to 35.19 cents at 11:38 a.m. on ICE Futures U.S. in New York. Earlier, the price reached 36.08 cents, the highest for a most-active contract since November 1980.
Brazil to Help U.S. Counter China, Official Says. will seek closer commercial ties with the U.S. in a bid to counteract the threat posed by cheap imports from Brazilian President Dilma RousseffChina, a Brazilian official said.
Wall Street Journal:
Mubarak Supporters Battle Protesters. The political unrest gripping Cairo turned ugly Wednesday, as groups of supporters of President Hosni Mubarak charged antigovernment protesters, underscoring the difficulty of a smooth democratic transition to a post-Mubarak Egypt. Bloody clashes in the city's main square escalated through the day, after Mr. Mubarak said Tuesday night he would step down after elections this year—angering protesters who demanded his immediate resignation after 29 years in power.
EU Sees Massive Aid to Huawei, ZTE. The European Commission believes Huawei Technologies Co. and ZTE Corp., China's largest telecommunications equipment makers, likely benefit from significant Chinese government support, including "massive" credit lines from Chinese state-owned banks, according to a confidential commission document obtained by Dow Jones Newswires. The findings are likely to fuel further debate regarding the treatment of the large subsidies that—according to western governments and companies—Chinese businesses receive from the Chinese government.
Bloomberg Businessweek:
VIX Sinking to Three-Year Low is Fastest-Growing Bet.Traders are snapping up bets that the U.S. options market gauge known as the VIX will sink to a three- year low after concern that equities will retreat fades. The number of outstanding May 15 put options on the Chicago Board Options Exchange Volatility Index jumped to 54,527 from 8,318 on Jan. 27 for the biggest one-day increase among all contracts during the past week, according to data compiled by Trade Alert LLC.
MarketWatch:
News Corp.(NWSA) Launches The Daily on iPad. News Corp. on Wednesday launched its long-awaited iPad-based daily newspaper, The Daily, in the latest attempt to adapt newspapers to an increasingly mobile digital audience.
Business Insider:
Gary Shilling on the Chinese Hard Landing That's Going to Prick the Global Commodity Bubble. China's economy is, "in for a hard landing...this year or next year," according to Gary Shilling, who spoke at Bloomberg's China Investment Strategies conference. He doubts the ability of the Chinese government to control the economy, and described its monetary policy as "very crude."
Playing to Hedge Funds, a Trophy Rises in Midtown. When the developer Harry Macklowe contemplated building a boutique office tower with unparalleled amenities at 510 Madison Avenue in the late 2000s, he expected it would be filled with hedge funds and other financial sector tenants who would pay rents well above $100 per square foot. But the economy slumped in late 2008, and Mr. Macklowe found himself fighting to maintain ownership of 510 Madison, at 53rd Street, where just one company had signed a lease. He lost that ownership battle to Boston Properties last September. Now, a series of leases signed at 510 Madison late last year for well north of $100 a square foot signifies a turnaround for the building — and may presage a recovery of Manhattan’s overall high-end office market, brokers said.
Financial Disarray at S.E.C. Hurts Bid for Bigger Budget. If a company’s financial reporting were so bad that its auditor had pointed out significant weaknesses in its accounting for seven years running, the Securities and Exchange Commission would most likely be all over it. But what if the company were the S.E.C. itself?
TSA Debuts Less-Revealing Software for Airport Scanners. New software designed to make airport security scanners less intrusive debuted at the Las Vegas airport Tuesday, a response to last year's uproar from passengers who thought the blurry but revealing images were an invasion of privacy.
Fox Business:
Many Hedge Funds Have Weak Start In January, Lagging Stocks. Many hedge funds lagged stock market indexes and took the wrong side of currency and interest-rate bets in January, in a lackluster start to the year for the industry. The HFRX Global Hedge Fund Index, tracking about 250 funds that report on a daily basis, gained 0.56% in January, far less than the S&P 500's 2.4%.
Real Clear Markets:
White House Delays Fannie & Freddie Reform. Fannie and Freddie are still bleeding losses, costing taxpayers billions more each month. Yet the White House continues to delay reforms, in defiance of a congressional order.
Barack Obama Faces Tough Questions on Egypt. Egyptian President Hosni Mubarak’s apparent desire to hang on to power until September is forcing President Barack Obama into a difficult position.
BMO Chief Says Seeing Signs of U.S. Business Pickup. The head of Bank of Montreal, which recently moved to expand its already substantial U.S. presence, says he sees signs of increased acquisition and trade activity among the bank's U.S. clients, suggesting an improving business climate.
Le Temps:
Iraq will increase its oil-production capacity to 11 million barrels a day within "six or seven years," the country's Deputy Prime Minister Hussain al-Shahristani said. That would make Iraq a bigger producer than Saudi Arabia, al-Shahristani said.
Wolfgang Wiegard, a member of Chancellor Angela Merkel's council of economic advisers, said he doubts that Greece can avoid a debt restructuring. Wiegard said he can "imagine mechanisms" that limit restructuring costs to banks, and not German tax payers. European Union governments must sharpen their plans to include private creditors in debt restructurings, he said.
Die Zeit:
European Union officials are considering measures that would punish countries that run excessive trade surpluses or whose competitiveness is too high, citing a document. The proposed measures would require states to keep their current account balances within a "corridor" of plus or minus four percent of GDP. A similar boundary would apply for the yearly change in unit labor costs, a measure of price competitiveness.
Mubarak Fails to Calm Protests With Pledge to Step Down. Egyptian President Hosni Mubarak said he will step down after elections for a new leader, a concession rejected by opposition leaders and protesters who refuse to wait months for an end to his regime. Mubarak said he’ll stay on to ensure “stability” and push through political and economic changes before leaving. The crowd in Cairo’s Tahrir Square began chanting anti-Mubarak slogans in response to the president’s state-television address. “Your last day will be Friday,” some shouted, referring to the Muslim prayer day when more demonstrations are planned.
Jordan's Prime Minister Rifai Resigns; King Asks Bakhit to Form Government. Jordan’s King Abdullah replaced his prime minister following street protests and asked former premier Marouf Bakhit to form a new government that will launch a “genuine political reform process.” Abdullah told Bakhit that he should put the country on the path “to strengthen democracy,” and provide Jordanians with the “dignified life they deserve,” the Royal Court said in an e-mailed statement. Islamic and leftist groups have held demonstrations every Friday since a revolt in Tunisia forced President Zine El Abidine Ben Ali into exile on Jan. 14.
Fed May Discuss Easing If Data Weak, Hoenig Tells Market News. The Federal Reserve may consider buying more U.S. Treasury securities than planned if U.S. economic data show weakness, Kansas City Federal Reserve Bank President Thomas Hoenig told Market News International. The economy will expand at least 3.5 percent this year, Hoenig said yesterday in an interview. He reiterated he would like to “normalize” monetary policy by shrinking the Fed’s balance sheet and raising interest rates, the news service said. The Kansas City Fed president expressed concern over rising land prices, Market News International said. “I don’t predict bubbles, but we certainly are beginning to see an acceleration of prices in this part of the country that I haven’t seen since the late 70s or early 80s,” he was quoted as saying.
Geithner Met With Dimon, Moynihan, Schwarzman on Dodd-Frank Law. Treasury Secretary Timothy F. Geithner met with chief executive officers Jamie Dimon of JPMorgan Chase & Co.(JPM), Brian Moynihan of Bank of America Corp.(BAC) and Stephen Schwarzman of Blackstone Group LP(BX) in December to discuss how the Dodd-Frank financial overhaul law will be implemented. Geithner talked with Dimon and Peter Scher, JPMorgan’s executive vice president for government relations, on Dec. 7 about the Volcker rule, which restricts banks from risking capital by trading for their own accounts, according to calendars posted on the Treasury Department’s website.
Atlanta Pension Panel Suggests Firing Subpar Investment Managers. The chairman of an Atlanta advisory panel looking for solutions to a $1.5 billion pension deficit said the city should consider firing its investment managers because returns don’t justify their cost. Atlanta’s three pension funds, with assets of $1.9 billion, could potentially save $5 million a year in fees for active managers that buy and sell investments with the goal of outperforming an index, according to data compiled by the panel. Managers for Atlanta’s police and general employee funds have underperformed benchmarks, panel Chairman John Mellott said today during a meeting at city hall. “We are closet indexers,” said Mellott, a former publisher of the Atlanta Journal-Constitution and an adviser with Bain & Co. The city should consider moving to a less-expensive passive investment strategy, or hire a new crop of active managers with lower fees, Mellott said. The city’s 50 investment fund managers included JP Morgan/Bank One Invesco Ltd, Mesirow Financial Inc. and Wellington Management, as of Sept. 30. The city’s pension funds combined have returned 3 percent over the past 10 years, compared with an 8 percent assumed return, Mellott said.
India's foreign direct investment is headed for the first drop since the year ending March 2003, hindering a bid to match China's surging economy. FDI fell 24% to $19 billion between April and November compared with the same period a year earlier.
Germans feel prices are rising almost twice as fast as the official rate, fueling wage demands and making it harder for the European Central Bank to keep a rein on inflation, according to UniCredit Bank AG. So-called "perceived inflation" jumped to 3.3% in December compared with Germany's official rate of 1.7%. UniCredit calculates perceived inflation by giving greater weight to the goods people buy most often, such as fuel, food and clothing. "The rise in perceived inflation increases the likelihood of higher wage demands," said Alexander Koch, an economist at UniCredit in Munich. "An excessive round of wage increases would certainly make the ECB nervous."
Mines Close, Ships Flee as Cyclone Yasi Nears Australian Coast. Coal and zinc mines are shut and at least 32 coal ships are steaming out to sea, as sugarcane and banana farmers in northeastern Australia brace for the forecast landfall later today of Tropical Cyclone Yasi.
China's Wen to Curb Property Speculation, Add Low-Cost Homes. China’s Premier Wen Jiabao pledged to curb property speculation and add more affordable housing after home prices rose last month as buyers defied government measures. China’s January home prices posted their biggest month-on- month gain in six months, according to SouFun Holdings Ltd. The country needs to “resolutely control the property market” and “maintain stable housing prices,” Wen said in his Lunar New Year speech yesterday posted on the website of the state-run People’s Daily newspaper, reiterating comments on Jan. 18 ahead of last week’s curbs.
Wall Street Journal:
How Cairo, U.S. Were Blindsided by Revolution. Two months before Egypt exploded in popular rage, Secretary of State Hillary Clinton met Ahmed Aboul Gheit, Egypt's foreign minister, in her seventh-floor offices in Washington. U.S. officials were miffed that Cairo was ignoring their pleas to make coming legislative elections more credible by allowing international ballot monitors. But after the meeting, neither Mrs. Clinton nor Mr. Aboul Gheit mentioned that disagreement when they spoke publicly. Mrs. Clinton praised the longstanding partnership between the U.S. and Egypt as the "cornerstone of stability and security in the Middle East and beyond." Months later, that cornerstone is crumbling. A week-long wave of demonstrations has pushed President Hosni Mubarak to promise he'll leave—and the repercussions of the tumult in the Arab world's most populous land have only begun to reverberate around the strategic and volatile Middle East.
Egypt's Islamist Riddle. Muslim Brotherhood Says It Seeks Limited Role, but Its Radical Roots Spur Questions. The decision by Egyptian President Hosni Mubarak to not stand for re-election forces the U.S. to confront a thorny dilemma—how to deal with Egypt's Muslim Brotherhood. The 83-year-old Islamic movement, Egypt's biggest opposition bloc, played a subdued role in the uprising. But its past performance in parliamentary elections and its dedicated following mean it will be a force to be reckoned with as Egypt moves toward open elections. Newly minted Vice President Omar Suleiman has indicated to U.S. diplomats that he wants any talks with the opposition to include the Brotherhood, U.S. officials say. That would mark a fundamental shift for Egypt's government, which outlawed the group in 1954 and says the Brotherhood is a threat to the country's stability.
Wall Street Pay Hits Record. When it comes to paychecks, Wall Street's law of gravity is back in full force: What goes down must come back up. In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009.
Yemen Leader Summons Parliament. President Ali Abdullah Saleh called for an emergency meeting of Yemen's parliament to be held Wednesday, at which officials close to the president say he will announce measures aimed at tamping down unrest that has swept his country and much of the rest of the Arab world.
Battling a Wireless Deluge. AT&T(T), Other Carriers Use Wi-Fi 'Hotzones' to Siphon Off Smartphone Traffic.
Another Rajaratnam Named in Ring. Younger Brother of Galleon Founder Was Co-Conspirator, Prosecutors Allege; Pressure on Raj Builds. Prosecutors have alleged that a younger brother of Galleon Group founder Raj Rajaratnam was a co-conspirator in a criminal insider-trading ring, according to people familiar with the matter. The latest development—which hasn't previously been made public—comes as the pressure builds on Raj Rajaratnam to plead guilty.
The Nuts and Bolts of the ObamaCare Ruling. According to the government's theory, wrote Judge Vinson, 'the more harm the statute does, the more power Congress could assume for itself under the Necessary and Proper Clause.'
Where Should Egypt Go From Here? Protests in Egypt have rocked the country's political order, and last night President Hosni Mubarak announced he would not run in the September presidential election. Four experts—Francis Fukuyama, Ryan Crocker, Maajid Nawaz and Amr Bargisi—weigh in on where Egypt should go from here.
U.S. Firms, China Are Locked in Major War Over Technology. A titanic battle is under way between U.S. business and China, a battle reflected in President Barack Obama's State of the Union address last week and destined to dominate relations between the two countries for years. At issue: Innovation. China's bureaucrats have been rolling out an array of interlocking regulations and state spending aimed at making their country a global technology powerhouse by 2020. The new initiatives—shaped by rising nationalism and a belief that foreign companies unfairly dominate key technologies—range from big investments in national industries to patent laws that favor Chinese companies and mandates that essentially require foreign companies to transfer technology to China if they hope to sell in that market. To hear U.S. business executives describe it, Beijing's mammoth new industrial policy is like the Borg in "Star Trek"—an enormous organic machine assimilating everything in its path, in this case the inventions of other nations. Notably, China's road map, which is enshrined in the "National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)," talks in those terms. China will build its dominance by "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies." "It's a huge, long-term strategic issue," says a top executive at a U.S. technology firm operating in China. "It isn't just the crisis of the day for U.S. business. It's the crisis."
Embarrassment of Riches by Andy Xie. Despite the dot-com bust, 9-11, the wars in the Middle East, the U.S. property bubble, the euro-zone sovereign credit crisis, the continuing stagnation of the Japanese economy — the first decade of the 21st century was the most prosperous, according to conventional measurements, in our lifetime. But the prosperity on paper isn’t reflected in the moods of peoples around the world. In fact, most people around the world say that they are dissatisfied with their economic plight. The poor quality of economic growth may explain the gap between economic indicators and social moods. The poor growth quality is reflected in (1) inflation of economic necessities, (2) rising debt levels for the support of living standards in the developed world, (3) rising property prices that puts housing out of reach for the middle class in the developing world, and (4) skyrocketing economic inequality that makes the economy dependent on the demand of a small, wealthy minority. The right path forward is slower but results in more equitable growth. The most important policy change should be to move away from using liquidity to boost economic growth. It is the most important cause of inflation and rising inequality.
Why Dinan Worries About Fate of Small Hedge Funds. For the head of a multibillion-dollar hedge fund, James G. Dinan worries a lot about the fate of the industry’s littlest players. Mr. Dinan, the chief executive and founder of York Capital Management, said in a speech on Monday that he wasn’t concerned that added regulation would hurt his bottom line, although he’s significantly beefed up his legal and compliance staff. Rather Mr. Dinan fears that the new rules will keep smaller players out of the hedge fund game — a critical group that keeps large institutions like York from getting lazy.
China Is Poised to Raise Rates Again, Bankers Say. China’s government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the month. That is the forecast of economists and bankers with knowledge of policy makers’ views, who insisted on anonymity because of the political and diplomatic sensitivity of Chinese monetary policy.
Pressure Builds for Debt Reduction. The push to come up with a plan to reduce national debt got a bipartisan bear hug in the Senate on Tuesday. Three lawmakers who sat on President Obama's bipartisan debt commission -- Sens. Kent Conrad, Tom Coburn and Mike Crapo -- convened a meeting of more than 30 senators from both parties "to make sure everyone comes to consensus on how big the problem is and how real it is," Coburn told CNN.
Politico:
Anti-Abortion Sting Hits Planned Parenthood. Anti-abortion groups released a video Tuesday that they allege shows a Planned Parenthood employee advising minors to provide false information in order to obtain an abortion. The video was shot by 22-year-old Lila Rose, an anti-abortion activist who has previously worked with James O’Keefe on undercover videos shot inside Planned Parenthood clinics. O’Keefe did a series of undercover sting videos on ACORN workers during the last presidential campaign. This most recent video, involves two activists, allegedly posing as sex traffickers, seeking advice on how to get STD testing, birth control and abortions for 14- and 15-year-old girls at a Planned Parenthood clinic in New Jersey. A clinic employee seemingly advises them on how to skirt reporting requirements and provides a phone number of another clinic where girls 14 and under can more easily obtain abortions. Anti-abortion groups have seized on the video, widely circulating it Tuesday afternoon, calling on Congress to defund Planned Parenthood.
USA Today:
Fees For Home Mortgages Increase. The cost of getting a mortgage is rising as higher fees hit more borrowers, including those with stellar credit. For the first time since 2009, Fannie Mae and Freddie Mac are raising risk fees they charge lenders on loans they buy for resale to investors. The mortgage giants are also adding risk fees to more loans extended to people with stellar credit. To avoid a fee or to get a discount, most borrowers will need FICO scores of 740 or better and down payments of 25% or more. Lenders could absorb the cost, but most are expected to add it to loan costs within days, if they haven't already, says Cameron Findlay, LendingTree economist.
Reuters:
EU Back Curbs on Commodity Speculation - Document. The European Union will pledge a crackdown on speculation in commodities such as grain to combat "unprecedented" price volatility, the EU's executive will say in a strategy document to be released on Wednesday, seen by Reuters. France's President Nicolas Sarkozy has made combating commodity price volatility a priority for his country's presidency of the G20 group of leading countries. "The volatility of prices of agricultural commodities has recently increased to unprecedented levels. This is the case both on EU and international markets, and on spot and futures markets," the Commission said in its strategy document.
Broadcom(BRCM) Outlook Disappoints, Shares Fall. Chip maker Broadcom Corp on Tuesday forecast an increase in first-quarter expenses but a drop in revenue from the fourth quarter, and its shares fell 6 percent.
Acme Packet(APKT) Q4 Profit Tops Street, Raises FY'11 View. Acme Packet Inc posted fourth-quarter results that topped analysts' estimates and raised its 2011 outlook above Wall Street expectations, sending its shares up 4 percent in after-market trade. Acme, which provides communication infrastructure for telecoms and businesses, raised its 2011 adjusted earnings forecast to about $1.05 a share from 99 cents-$1 a share. It also raised its full-year revenue view to about $300 million from $286-$287 million. Analysts on average expected earnings of $1.04 on revenue of $296.3 million, according to Thomson Reuters I/B/E/S.
Financial Times:
Fed Passes China in Treasury Holdings. The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures. Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips. According to the most recent US Treasury data on foreign holders of US government paper, China holds $896bn and Japan owns $877bn.
Telegraph:
IMF Raises Spectre of Civil Wars as Global Inequalities Worsen. The International Monetary Fund (IMF) has warned that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries. Dominique Strauss-Kahn, the IMF's chief, said the economic rebound across the world is built on unstable foundations, with many rich nations still strapped in job slumps while the rising powers of China, India and Brazil already facing the threat of overheating. "It is not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis," he said. "Global unemployment remains at record highs, with widening income inequality adding to social strains," he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. "We could see rising social and political instability within nations – even war," he said.
Herald Sun:
Al Qaeda Actively Seeking 'Dirty' Bombs - WikiLeaks Documents. AL-QAEDA is attempting to procure nuclear material and recruit rogue scientists in order to build a radioactive "dirty bomb," leaked documents published in Wednesday's Telegraph newspaper revealed. The cables, released by the WikiLeaks website, showed that security chiefs told a Nato meeting in January 2009 that Al-Qaeda was planning a programme of "dirty radioactive improvised explosive devices (IEDs)." The makeshift nuclear bombs, which could be used against soldiers fighting in Afghanistan, would contaminate the surrounding area for years to come. The leaked documents also revealed that Al-Qaeda papers found in 2007 convinced security officials that "greater advances" had been made in bio-terrorism than was previously feared. US security personnel were warned in 2008 that terrorists had "the technical competence to manufacture an explosive device beyond a mere dirty bomb."
Evening Recommendations
None of note
Night Trading
Asian equity indices are +.75% to +1.75% on average.
Asia Ex-Japan Investment Grade CDS Index 107.0 -2.5 basis points.
Asia Pacific Sovereign CDS Index 119.0 -5.0 basis points.
The ADP Employment Change for January is estimated at 140K versus 297K in December.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,500,000 barrels versus a +4,836,000 barrel gain the prior week. Distillate supplies are expected to fall by -1,000,000 barrels versus a -140,000 barrel decline the prior week. Gasoline inventories are expected to rise by +2,000,000 barrels versus a +2,404,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.05% versus a -1.20% fall the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Duke speaking, Challenger Job Cuts for January, weekly MBA mortgage applications report and the (GNW) investor day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
