Sunday, February 28, 2010

Weekly Outlook

Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Calendar by

BOTTOM LINE: I expect US stocks to finish the week modestly higher on less sovereign debt fear, mostly positive earnings reports, diminishing financial sector pessimism, short-covering and technical buying. My trading indicators are giving mixed signals and the Portfolio is 100% net long heading into the week.

Monday Watch

Weekend Headlines

  • Sarkozy Says Euro Region Ready to Help Greece If Necessary. French President Nicolas Sarkozy said the euro region is ready to rescue Greece should the government struggle to fund its budget deficit, arguing that the country is “under attack” from so-called speculators. “I want to be very clear: if it were necessary, the states of the euro zone would fulfill their commitments,” he said in Paris yesterday after a meeting with Greek Prime Minister George Papandreou. “There can be no doubt in this regard.” While Greece doesn’t need assistance right now, “we have measures, we are ready, we are determined,” he said.
  • Default Swaps Fall to Six-Week Low on Greece: Credit Markets. The cost to protect against corporate defaults fell to the lowest in more than six weeks and U.S. investment-grade bond sales rose fivefold as optimism builds that Greece’s budget crisis will be contained. The Markit CDX North America Investment-Grade Index, linked to credit swaps on 125 companies, dropped 6 basis points last week to 85.4 basis points, the lowest since Jan. 20, CMA DataVision prices show. Asia-Pacific indexes of credit-default swaps declined today. Goldman Sachs Group Inc. led $34.5 billion of investment-grade offerings in the last two weeks, compared with $6.8 billion in the previous period, according to data compiled by Bloomberg.
  • Obama Spending Plan Underestimates Deficits, Budget Office Says. President Barack Obama's budget proposal would create bigger deficits than advertised every year of the next decade, with the shortfalls totaling $1.2 trillion more than the administration projected, according to the Congressional Budget Office. The nonpartisan agency said yesterday the deficit will remain above 4 percent of the nation’s gross domestic product for the foreseeable future while the publicly held debt will zoom to $20.3 trillion, amounting to 90 percent of GDP by 2020. By then, interest payments on the debt will have quadrupled to more than $900 billion annually, the report said. Deficits between 2011 and 2020 would total $9.76 trillion, the CBO said. Economists generally consider deficits topping 3 percent of GDP to be unsustainable because that means government debt is growing faster than the ability to pay back the money. “The news today from CBO is clear: The president’s budget will continue to lead our nation into a fiscal catastrophe -- an ever worse one than the president’s own numbers suggest,” Representative Paul Ryan of Wisconsin, the top Republican on the House Budget Committee, said yesterday. The CBO report is designed to give Congress an independent assessment of the administration’s budget request.
  • Volcker Criticizes Greek Budget Derivatives 'Abuse'. White House adviser Paul Volcker said the “abuse” of derivatives to hide the size of Greece’s budget deficit highlights the need for regulation and European Central Bank President Jean-Claude Trichet said derivatives still pose risks to financial stability. “Surely the recent revelations about the use (and abuse) of complex derivatives in obscuring the extent of Greek financial obligations reinforces the need for greater transparency and less complexity,” Volcker said in the text of a speech to the American Academy in Berlin, a transatlantic research institute. Speaking at the same event, Trichet said “what I fear really is that we are currently underestimating the systemic instability which is associated with” derivatives. European and U.S. officials are examining the role that investment banks including Goldman Sachs Group Inc.(GS) may have played in Greece’s debt crisis, joining an outcry in the European Union over whether swaps contracts helped conceal the size of its deficit. Goldman Sachs helped Greek officials raise $1 billion of off-balance-sheet funding in 2002 through swaps, which EU regulators said they knew nothing about until last month. German Chancellor Angela Merkel, who said on Feb. 18 it would be a “scandal” if banks helped Greece massage its budget, called for restrictions on derivatives to halt “speculators.” “Credit-default swaps, where you insure your neighbor’s house just to destroy it and make money from it, that’s exactly what we have to curb,” she said yesterday at a press conference in Berlin with Greek Prime Minister George Papandreou.
  • Italian Finance Minister Giulio Tremonti said the International Monetary Fund could intervene to support Greece "as a bank," in a letter published in daily Corriere della Sera.
  • Steve Cohen's Trade Secrets. The founder of SAC Capital, whose first losing year was 2008, is taking in new money as hedge funds around him collapse.
  • U.S. Senator Says Bank Bonus Tax Proposal Unlikely to Get Vote. The U.S. Senate is unlikely to vote on a measure that would impose a 50 percent tax on bonuses awarded last year to executives of Wall Street firms bailed out by the government, a top Democrat said. Senate Finance Committee Chairman Max Baucus said yesterday that, while he couldn’t rule out the possibility that the tax proposal would be voted on as an amendment to a jobs bill, the “chances are low” because of opposition from lawmakers in both parties.
  • House's Frank May Scrap Overhaul Bill With Weak Consumer Powers.
  • China to Nullify Loan Guarantees by Local Governments. China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt increases. The Ministry of Finance will also ban all future guarantees by local governments and legislatures in rules that may be issued as early as this month, Yan Qingmin, head of the banking regulator’s Shanghai branch, said in an interview. China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on such loans, estimated at about 11.4 trillion yuan ($1.7 trillion) at the end of 2009 by Northwestern University Professor Victor Shih, could trigger a “gigantic wave” of bad debts as projects are left without funding, Shih said this month. “By striking the fear of God into lenders, regulators hope to get them to turn off the tap,” said Patrick Chovanec, a professor at Tsinghua University in Beijing. “Banks have lent on the assumption that a lot of these infrastructure projects are risk-free, but many had no creditworthiness beside the guarantees.” Central bank governor Zhou Xiaochuan said March 6 during the National People's Congress that while “many” local financing vehicles have the ability to repay, two types cause concern. One uses land as collateral, while the other can’t fully repay borrowings, meaning local governments may be liable, leading to “fiscal risks,” he said. A few cities and counties may struggle with repayments in coming years because of debt ratios already exceeding 400 percent, a person with knowledge of the matter said in January. The ratio is of year-end outstanding debt to annual disposable fiscal income. “China’s sending a very strong signal that this kind of financing is over,” said Chovanec, an associate professor in the School of Economics and Management at Tsinghua University. “It raises the specter that China’s banking system has a lot more risk in it than people previously thought.” Jonathan Anderson, an economist at UBS AG, said March 5 he saw a “classic red herring” in arguments that “enormous, hidden off-balance-sheet liabilities” among China’s local governments could precipitate a debt crisis. “Beijing’s fiscal situation probably isn’t as good as it looks at first glance,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. “Perhaps at some stage the central government is going to have to bail out the banks or the regional governments and take it on its own balance sheet.”
  • China's Wen May Struggle to Meet 3% Inflation Target. Premier Wen Jiabao may struggle to keep inflation at his 2010 target of about 3 percent, after banks flooded the Chinese financial system with money to drive the nation’s economic rebound. Inflation may peak at 4.4 percent during the year, according to the median forecast of 14 economists surveyed after Wen gave the goal in a speech to lawmakers in Beijing yesterday. “Three percent is a fairly aggressive target and it suggests that the government will need interest-rate increases and price controls to achieve it,” said Ma Jun, a Hong Kong- based chief China economist at Deutsche Bank AG.
  • China Says Sanctions Can't Solve Iran Nuclear Issue. China’s Foreign Minister said new sanctions aren’t the solution for halting Iran’s development of nuclear weapons, two days after one of his diplomats said China may vote for such measures at the United Nations. “We believe that diplomatic efforts have not been exhausted,” Yang Jiechi said during a televised press conference today at the National People’s Congress meetings in Beijing. “Pressure and sanctions are not the fundamental way to resolve the Iran nuclear problem.” Yang’s comments come after the U.S. gave China, Britain, France, Russia and Germany a proposal in the past week to tighten restrictions on dealings with Iran’s banking, shipping and insurance industries. The plan also targets the Iranian Revolutionary Guard Corps that U.S. Secretary of State Hillary Clinton said has largely taken control of the nation.
  • N.Korea Threatens to Bolster Nukes, End Armistice. North Korea threatened to proceed with nuclear weapons development and renounce the 1953 armistice that ended combat in the Korean War, as it condemned a planned military exercise between South Korea and the U.S. “There is no reason whatsoever,” to adhere to the armistice, a North Korean military spokesman said today in a statement carried by the official Korean Central News Agency. “The process for the denuclearization of the Korean Peninsula will naturally come to a standstill and the (Democratic People’s Republic of Korea) bolster its nuclear deterrent for self-defense.”
Wall Street Journal:
  • Iraqi Voters Defy Violence. Despite a spasm of violence early Sunday, Iraqis flocked to the polls in what appeared to be large numbers, in a hard fought and too-close-to-call parliamentary election representing a pivotal test of the country's fledgling democracy.
  • Democrats Voice Health-Bill Doubts. Some House Democrats wavering over whether to back a health-care overhaul questioned whether it would effectively curb the country's health costs, highlighting a difficult issue that the White House and congressional leaders must address in the final negotiations on the measure. The issue is one of several that have been raised by Democrats over the bill, which President Barack Obama and Democratic leaders are pushing to pass by the end of March. Conservative Democrats have raised questions over the bill's language on abortion and tax increases, while liberals are unhappy with its failure to include a government plan that would compete with private insurers. On Sunday, two Democrats who hold swing votes said they were focusing on how much money the overhaul would actually save, both for employers and insured workers, and for the federal government. The House and Senate have passed competing bills, and leaders now are putting together a compromise version. Details on cost savings are still being worked out. "If the House and Senate can't work out cost containment, I don't see how I could support a bill that doesn't help our business community," Rep. John Adler (D., N.J.) said on "Fox News Sunday." "I'm not sure we've gone far enough in terms of fixing the underlying system to make it affordable for businesses and taxpayers." Rep. Jason Altmire (D., Pa.), also appearing on Fox, said he needed "to see a much clearer picture of the cost containment." He suggested strengthening provisions in the bill aimed at shifting the way providers are reimbursed, to be based on quality of care rather than the number of procedures performed. Critics say the government's current fee-for-service reimbursement system within its Medicare program encourages providers to offer patients unnecessary procedures. Democrats backing a health overhaul have cited cost containment as a main goal. But Republicans and some Democrats say the legislation doesn't do enough to address the issue, a concern that appears to be contributing to public doubts over the legislation.
  • China Unicom Pursues iPhones with Wi-Fi. China Unicom (Hong Kong) Ltd. is working with Apple Inc.(AAPL) to introduce iPhones with Wi-Fi wireless Internet capability to China, Unicom Chief Executive Chang Xiaobing said. Apple and Unicom, one of three Chinese state-owned telecommunications carriers, started selling the iPhone in China in October, after lengthy negotiations. Government regulations forced Apple and Unicom to disable Wi-Fi capability, which, along with relatively high prices, made the phone less attractive to many Chinese consumers than fully functional iPhones brought in for resale from other markets.
  • Battle Inside Fed Rages Over Bank Regulation.




NY Times:
  • The Swaps That Swallowed Your Town. As more details surface about how derivatives helped Greece and perhaps other countries mask their debt loads, let’s not forget that the wonders of these complex products aren’t on display only overseas. Across our very own country, municipalities, school districts, sewer systems and other tax-exempt debt issuers are ensnared in the derivatives mess. Like the credit default swaps that hid Greece’s obligations, the instruments weighing on our municipalities were brought to us by the creative minds of Wall Street. The rocket scientists crafting the products got backup from swap advisers, a group of conflicted promoters who consulted municipalities and other issuers. Both of these camps peddled swaps as a way for tax-exempt debt issuers to reduce their financing costs. Now, however, the promised benefits of these swaps have mutated into enormous, and sometimes smothering, expenses. Making matters worse, issuers who want out of the arrangements — swap contracts typically run for 30 years — must pay up in order to escape. That’s right. Issuers are essentially paying twice for flawed deals that bestowed great riches on the bankers and advisers who sold them. Taxpayers should be outraged, but to be angry you have to be informed — and few taxpayers may even know that the complicated arrangements exist.

NY Post:

  • Iceland Voters Reject Repaying $5 Billion Foreign Debt. Iceland's voters overwhelmingly rejected a deal to pay billions of dollars it owes to the United Kingdom and the Netherlands, the Foreign Ministry said Sunday. With around 90 percent of votes counted, just over 93 percent said no and just under 2 percent said yes. Not enough votes remain to be counted to change the result. Some 62.5 percent of Iceland's roughly 200,000 register voters cast ballots, the ministry said.
  • The Next Tech Goldmine: Medical Records.

Business Insider:
Washington Post:
  • Billionaire Bubble: Ten players in the local tech scene look back, a decade later, at the frenzied days of the Internet boom and its fateful bust.
  • Rep. Barney Frank Warns of Fannie, Freddie Risks. An influential voice on Capitol Hill has unexpectedly called into question the safety of investing in Fannie Mae and Freddie Mac, raising the specter that investors who have lent money to the two firms or bought their mortgage-backed securities could one day suffer losses. The comments by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, forced the Treasury Department to issue a statement Friday reaffirming the government's commitment to the companies, their creditors and their investors. If investors come to doubt that Fannie Mae and Freddie Mac debt and investments are risk-free, they would demand a higher return -- which could ripple across the U.S. housing market and cause mortgage interest rates to rise, depressing demand for homes.
  • Why Make Government the Prime Source for Student Loans? by Lamar Alexander. While health-care reform occupies the spotlight, the Obama administration is pushing for another Washington takeover -- this time of the student loan system. Last month, U.S. Education Secretary Arne Duncan made the administration's latest pitch on this page. Here is what the administration and congressional Democrats have told us about this latest attempt: Starting in July, all 19 million students who want government-backed loans will line up at offices designated by the U.S. Education Department. Gone will be the days when students and their colleges picked the lender that best fit their needs; instead, a federal bureaucrat will make that choice for every student in America based on still-unclear guidelines. They say that this will save taxpayers up to $87 billion in subsidies that now go to "greedy" banks. In gleeful anticipation, members of Congress have lined up to spend those billions on Pell Grants and almost a dozen other programs. Banks are punished. Students are helped. Members of Congress look good. Here is what they haven't told us: The Education Department will borrow money at 2.8 percent from the Treasury, lend it to you at 6.8 percent and spend the difference on new programs. So you'll work longer to pay off your student loan to help pay for someone else's education -- and to help your U.S. representative's reelection. And there are some other things the government should tell you: The estimated $87 billion in savings isn't real.

Seeking Alpha:
LA Times:

Boston Globe:

Crain's Chicago Business:
  • Alexi Giannoulias, Kin Could Walk Away from Broadway Bank Collapse with $15 Million. The family of Democratic U.S. Senate nominee Alexi Giannoulias stands to collect more than $10 million in federal tax refunds even if its Broadway Bank fails, which Mr. Giannoulias said this week is likely. A $75-million loss at the struggling lender last year generated tax benefits potentially worth between $12 million and $15 million to Mr. Giannoulias, his two brothers and his mother. As the sole owners of a subchapter S corporation that controls $1.2-billion-asset Broadway, they pay the taxes on the bank’s income and reap tax deductions on its losses. The possibility of family members pocketing millions in tax refunds as Broadway slides toward insolvency and federal receivership is likely to fuel more controversy for Mr. Giannoulias, who is already under fire for his role in the bank’s downfall. In an interview this week, he took some responsibility for a disastrous expansion of real estate lending when he was senior lender at Broadway in the mid-2000s, before winning election as Illinois treasurer in 2006.

Rasmussen Report:
  • Daily Presidential Tracking Polls. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-one percent (41%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -17 (see trends).

Real Clear Politics:

USA Today:

  • Iran's Ahmadinejad Calls Sept 11 "big fabrication". Iranian President Mahmoud Ahmadinejad on Saturday called the September 11 attacks on the United States a "big fabrication" that was used to justify the U.S. war on terrorism, the official IRNA news agency reported.It came amid escalating tension in the long-running dispute between Iran and the West over Tehran's nuclear program, with the United States pushing for new U.N. sanctions against the major oil producer.
  • Pakistanis "arrest American al Qaeda spokesman". Pakistani security agents have arrested an American al Qaeda spokesman wanted in the United States for treason for threatening violence unless al Qaeda demands are met, Pakistani officials said on Sunday. News of the arrest of Adam Gadahn, a California-born convert to Islam, came the day a video was released in which he called for Muslims in the United States to launch attacks to undermine the economy, according to a website monitoring al Qaeda announcements. The capture of Gadahn, believed to be in his early 30s, is the latest in a series of militant arrests in U.S. ally Pakistan that has raised hopes for more concerted action against the Afghan Taliban and al Qaeda as U.S. forces battle militants over the border in Afghanistan.
  • Duabi Debt Deal Expected This Week: Bankers. Dubai World's plan for repaying $26 billion in debt will not include a proposal to raise capital or contain any surprises, one of the bankers said, such as the repayment of Nakheel's Islamic bond in December after a last-minute bailout by Abu Dhabi.
  • Greece Won't Need Aid, Cenbank Chief Tells Paper. Greece will not need foreign help to deal with its debt problems, central bank governor George Provopoulos said in a German newspaper interview released on Monday. Provopoulos told the Financial Times Deutschland (FTD) that solid demand for a 10-year, 5.0 billion euro ($6.8 billion) bond Greece sold last Thursday showed Athens could raise the funds it needs on financial markets.
  • Talk of China Giving Up on Dollar is Nonsense-Banker. Any speculation that China might stop supporting the dollar in the next few years is absolute nonsense, a top state banker said.

Financial Times:
  • Why the Euro Will Continue to Weaken. If you want to unnerve a European, the revelation of a secret dinner of New York-based hedge funds conspiring against the euro is hard to beat. Europeans are right to worry – but not about the collusion itself. They should be much more concerned that some of the world’s smartest investors are convinced the euro has only one way to go: deep down. This is a story about what will happen to the eurozone beyond Greece. Without political and legal constraints, this would be much easier. The eurozone would prescribe itself a crisis resolution mechanism, a procedure to manage internal imbalances, and perhaps move towards a common eurozone bond. While all of this sounds sensible, none of it may ever happen because of political and legal constraints. Some member states would argue that a new European treaty would be needed to implement such proposals. The route to getting the Lisbon treaty ratified was so tortuous that Brussels would rather go to hell and back than negotiate and ratify another treaty. In any case, German constitutional law imposes such tight constraints that any dilution of the no bail-out clause in the Maastricht treaty or the price stability target of the ECB might trigger a forced German exit. The most one can hope for during the next 10 years is improved voluntary co-ordination in the European Council.So the question then becomes: what economic adjustment mechanisms are feasible against this political and constitutional backdrop? The options are limited.The one policy response we can almost take for granted will be an attempt to reduce budget deficits back towards the Maastricht treaty’s upper ceiling of 3 per cent of gross domestic product. This will be achieved, if not by 2012, then a year or two later. If we assume further budgetary consolidation as a given, how then will the eurozone economy adjust? It is an economic fact that the sum of public and private sector balances must equal the current account balance. So forcing up public sector balances implies either an offsetting fall in private sector balances, an offsetting improvement in the current account balance, or some combination of the two. In scenario one, the eurozone’s current account balance remains broadly unchanged, and all the adjustment comes through a fall in private sector balances. In a similar way, Greece last week solved its fiscal problem by creating a private sector problem of identical size. The Greek state – the sum of its public and private sectors – is just as bankrupt today as it was a week ago. This means that, by following the fiscal policy rules, the eurozone would risk a private sector depression, which would almost certainly be concentrated heavily in Europe’s south. This scenario would greatly increase the probability of a eurozone break-up at some point in the future. Investors who believe in this scenario would be very afraid to hold euros. In scenario two, all the adjustment comes through the eurozone’s current account balance, which would turn from slightly negative to strongly positive. It is difficult to see how this could be done without a significant further devaluation of the euro. The euro would join the long list of currencies that have seen their problems solved through competitive devaluation. So the consequences would be a significant devaluation of the euro against the dollar and a reversal of its appreciation against sterling. It would make life more difficult for the British. But, most importantly, it would contribute to a resurgence in global imbalances. Whichever scenario you choose, the euro is going to be weak. Even if the eurozone were to allow more serious slippage in budgetary consolidation than I have suggested, that would probably not help the euro either, as markets would start to doubt the longevity of the currency union for political reasons. We have always known that a monetary union cannot exist without political union in the long run. Those smart New York investors are betting that the long run is closer than we thought.
  • Traders Cut Iran Petrol Line. The world’s largest oil traders have quietly stopped supplying petrol to Iran in a clear sign that the threat of sanctions and Washington’s behind-the-scenes efforts to convince companies not to sell to Tehran are paying off. However, the decision by Vitol, Glencore and Trafigura is unlikely to cut Tehran off completely from the global petrol market as traders said Iran’s long-standing suppliers were being replaced by small Dubai-based and Chinese companies.
  • Shoppers Could Face VAT on Food. The imposition of VAT on groceries is being actively considered by Whitehall officials as a radical means of reducing the national debt. The feasibility of introducing the food tax is being raised informally between civil servants, industry bodies and retail insiders. So politically-sensitive is the move that all the talks are occurring "under the radar", according to retail industry insiders. Basic supermarket groceries are currently immune from VAT, along with books, newspapers and children's clothes. However a VAT levy on food of between three and five per cent would raise billions of pounds in tax and help reduce Government borrowings, which are expected to hit £180 billion this year. Food sales from supermarkets are estimated to total £120 billion a year. The tax would be controversial as it would disproportionately affect poorer families. Any move to impose it would be vehemently opposed by the UK's large food retailers, who argue that it would be a 'tax on living'.
  • Green Jobs & Green Energy Are a Fraud.

  • Mobile-Phone Networks Vie for the Apple(AAPL) iPad. APPLE executives will jet into Britain this week for crunch talks with mobile-phone companies over which network will sign up its iPad tablet computer. The gadget giant said last week that its new device will go on sale in America from April 3 and come to Britain later in the month. However, unlike in 2007 when O2 was selected as the network for its iPhone, Apple is not expected to choose a single provider this time.

Deutschlandfunk Radio:
  • A default by Greece may have an "infectious effect" on countries like Portugal, Spain and Italy, forcing European governments to come to the rescue of their banks, Deutsche Bank chief economist Thomas Mayer said. Any indication that creditors will have to make writedowns on a total of more than $709 billion in claims against Greece would be "a real problem," Mayer said. The situation would be similar to what followed the collapse of Lehman Brothers Holdings Inc., he said.
Frankfurter Allgemeine Sonntagszeitung:
  • Merck KGaA is prepared to make further acquisitions after agreeing to buy Millipore Corp. for $6 billion, CEO Karl-Ludwig Kley said. "We do have a number of ideas," he said. "Acquisitions are a part of our strategy." The purchase of Millipore will strengthen Merck's profit "from year one", FAS cited Kley as saying.
Globe and Mail:
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Financial Post:
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The Star Online:
  • Financial Speculators are Still Causing Havoc. The past fortnight has seen new outrage against financial speculators, especially the hedge funds that are accused of undermining Greece and the euro. But will action ever be taken to curb them? Political leaders in Europe are now attacking the role of hedge funds and other financial speculators, while the European Commission is investigating their activities with a view to tighter regulation. The role of derivatives, and especially the credit default swaps, are also coming under attack, as these are found to be among the most potent speculative instruments. What is really surprising is that action against the speculators and the mechanisms they use has not been taken until now. It was financial speculation, with the use of instruments such as securitisation of debts and credit derivatives that lay the ground for the Western and global financial crisis that almost torpedoed the world economy. Despite the enormous harm they have caused, many of the speculators and the instruments have been allowed to continue their trade. The reason for this, according to many analysts, is that the financial institutions, tycoons and their lobby groups wield enormous influence over political leaders, and partly because of the contributions they make to political parties, especially in the United States.

China Business News:


  • Panasonic Corp., the world's biggest maker of plasma televisions, will tie up with Best Buy Co.(BBY) in an effort to boost U.S. sales of 3-D TVs. Best Buy, the largest U.S. electronics retailer, aims to set up a space for customers to watch 3-D movies on Panasonic's televisions at 1,000 shops by the end of this year.

Economic Daily:

The National:
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Weekend Recommendations
  • Made positive comments on (MBT), (AXP), (AMZN), (SEIC) and (CHRW).
  • Made negative comments on (INFY) and (WIT).
  • Reiterated Buy on (TMK), target $57.
  • Upgraded (LGCY) to Buy, target $25.
Night Trading
  • Asian indices are +.75% to +1.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 98.0 -4.0 basis points.
  • S&P 500 futures +.16%
  • NASDAQ 100 futures +.05%
Morning Preview
Earnings of Note
  • (HRB)/.16
  • (THO)/.29
  • (RUE)/.30
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Sack speaking, Cowen Healthcare Conference, CSFB Media/Communications Conference, Jeffries Tech Conference, Stifel Nicolas Consumer Conference, Raymond James Institutional Investors Conference, (PSEG) analyst day, (PEG) analyst conference, $26 Bln 1-year Treasury Note Auction and the (TXN) Mid-Quarter Update could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity stocks 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 week.

Friday, February 26, 2010

Market Week in Review

S&P 500 1,104.49 -.42%*


Click here for the Weekly Wrap by

*5-Day Change

Market Week in Review

S&P 500 1,159.90 +.86%*


The Weekly Wrap by

*5-Day Change

Weekly Scoreboard*

  • S&P 500 1,104.49 -.42%
  • DJIA 10,325.26 -.74%
  • NASDAQ 2,238.26 -.25%
  • Russell 2000 628.56 -.48%
  • Wilshire 5000 11,343.17 -.42%
  • Russell 1000 Growth 493.60 -.60%
  • Russell 1000 Value 565.42 -.32%
  • Morgan Stanley Consumer 671.24 -.43%
  • Morgan Stanley Cyclical 826.44 -.41%
  • Morgan Stanley Technology 559.68 -1.02%
  • Transports 4,134.57 +1.82%
  • Utilities 367.39 -2.57%
  • MSCI Emerging Markets 38.95 -.86%
  • Lyxor L/S Equity Long Bias Index 969.53 +.39%
  • Lyxor L/S Equity Variable Bias Index 849.59 +.03%
  • Lyxor L/S Equity Short Bias Index 925.82 -.53%
  • NYSE Cumulative A/D Line +75,513 +.81%
  • Bloomberg New Highs-Lows Index +229 +42
  • Bloomberg Crude Oil % Bulls 18.0 -41.94%
  • CFTC Oil Net Speculative Position +85,352 +24.72%
  • CFTC Oil Total Open Interest 1,280,235 -1.64%
  • Total Put/Call .87 +6.1%
  • OEX Put/Call 1.62 +97.56%
  • ISE Sentiment 91.0 -1.09
  • NYSE Arms 1.01 -1.94%
  • Volatility(VIX) 19.50 -2.60%
  • G7 Currency Volatility (VXY) 12.06 -2.22%
  • Smart Money Flow Index 9,390.64 +.46%
  • Money Mkt Mutual Fund Assets $3.166 Trillion -.10%
  • AAII % Bulls 34.90 -2.65%
  • AAII % Bears 29.53 -16.16%
Futures Spot Prices
  • CRB Index 274.77 -1.09%
  • Crude Oil 79.66 -.82%
  • Reformulated Gasoline 218.79 -.88%
  • Natural Gas 4.81 -4.93%
  • Heating Oil 203.53 -2.48%
  • Gold 1,118.90 unch.
  • Bloomberg Base Metals 201.64 -1.79%
  • Copper 328.40 -2.41%
  • US No. 1 Heavy Melt Scrap Steel 298.0 USD/Ton -1.22%
  • China Hot Rolled Domestic Steel Sheet 3,896 Yuan/Ton +2.12%
  • S&P GSCI Agriculture332.38 +.09%
  • ECRI Weekly Leading Economic Index 128.40 unch.
  • Citi US Economic Surprise Index +23.70 -36.97%
  • Fed Fund Futures imply 64.0% chance of no change, 36.0% chance of 25 basis point cut on 3/16
  • US Dollar Index 80.36 -.35%
  • Yield Curve 280.0 -5.0 basis points
  • 10-Year US Treasury Yield 3.61% -16 basis points
  • Federal Reserve's Balance Sheet $2.269 Trillion +.43%
  • U.S. Sovereign Debt Credit Default Swap 42.0 unch.
  • Western Europe Sovereign Debt Credit Default Swap Index 90.67 +2.26%
  • 10-Year TIPS Spread 2.16% -12 basis points
  • TED Spread 14.0 -2.0 basis points
  • N. America Investment Grade Credit Default Swap Index 92.21 -.14%
  • Euro Financial Sector Credit Default Swap Index 90.32 +4.58%
  • Emerging Markets Credit Default Swap Index 268.47 -1.99%
  • CMBS Super Senior AAA 10-Year Treasury Spread 334.0 -26.0 basis points
  • M1 Money Supply $1.716 Trillion +1.05%
  • Business Loans 649.0 -.22%
  • 4-Week Moving Average of Jobless Claims 473,800 +1.3%
  • Continuing Claims Unemployment Rate 3.5% unch.
  • Average 30-Year Mortgage Rate 5.05% +12 basis points
  • Weekly Mortgage Applications 549.50 -8.49%
  • ABC Consumer Confidence -50 -1 point
  • Weekly Retail Sales +1.90% unch.
  • Nationwide Gas $2.70/gallon +.08/gallon
  • U.S. Heating Demand Next 7 Days 10.0% above normal
  • Baltic Dry Index 2,738 +.88%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 55.0 +10.0%
  • Rail Freight Carloads 200,204 +4.08%
  • Iraqi 2028 Government Bonds 78.35 +.13%
Best Performing Style
  • Mid-Cap Growth -.12%
Worst Performing Style
  • Large-Cap Growth -.60%
Leading Sectors
  • Education +4.79%
  • HMOs +2.19%
  • Airlines +2.13%
  • Retail +1.92%
  • Road & Rail +1.72%
Lagging Sectors
  • Hospitals -3.17%
  • Construction -3.23%
  • Alternative Energy -3.23%
  • Disk Drives -5.41%
  • Computer Hardware -6.02%
One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Slightly Higher, Boosted by Airline, Homebuilding, Hospital, Steel and Coal Shares

Evening Review

Stocks Slightly Higher into Final Hour on Diminishing Euro Sovereign Debt Angst, Less Financial Sector Pessimism, Lower Long-Term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs and Financial longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is about even, most sectors are rising and volume is slightly below average. Investor angst is very high. Today's overall market action is mildly bullish. The VIX is falling -3.33% and is around average at 19.43. The ISE Sentiment Index is low at 89.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running slightly above average most of the day, hitting 1.33 at it intraday peak, and is currently .87. The Euro Financial Sector Credit Default Swap Index is falling -6.71% to 89.09 basis points. The North American Investment Grade CDS Index is falling -3.35% to 92.21 basis points. The TED Spread is unch. at 14.0 basis points. The 2-Year Swap Spread is rising +.73% to 24.13 basis points. The Libor-OIS Spread is unch. at 9.0 basis points. The 10-Year TIPS Spread is down -1 basis point to 2.15%. The 3-Month T-Bill is yielding .11%, which is unch. today. Construction shares are especially weak today, falling -1.31%. On the positive side, Airline, Homebuilding, Coal, Steel, Hospital and Bank shares are especially strong, rising 1.0%+. (IYR)/(XLF) have traded well throughout the day. Market leading stocks are outperforming. The Western Europe Sovereign CDS Index is dropping -6.52%, which is also a big positive. I suspect the major average would be up more today if it were not for the weather, which is definitely impacting volume. There is also likely some month-end hedge fund profit-taking/new shorting going on after a pretty good month for stocks. Investors are mostly ignoring the recent poor economic data, taking into account record winter weather around the globe. I suspect this will remain the case for several more weeks. However, if datapoints continue to deteriorate into March/April investors will step back. Notwithstanding a likely euro bounce next week on some sort of help for Greece, I still expect the region's debt problems to remain with us for some time and eventually become more pronounced. Nikkei futures indicate an +14 open in Japan and DAX futures indicate an up +8 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on technical buying, less financial sector pessimism, declining euro sovereign debt angst and lower long-term rates.

Today's Headlines

  • Fed's Hoenig Wants to Raise Rates From Zero 'Sooner". The Federal Reserve should start raising the target interest rate “sooner” from near zero if the U.S. economy continues to recover, Kansas City Federal Reserve Bank President Thomas Hoeniq said. “We should be going back to a more normal level sooner rather than later,” Hoenig said today in an interview with C- Span. “I would like to be in a position, should the economy continue to improve and I think it will, modestly, that we are able to move back to more normal rates sooner rather than later.” Hoenig disagreed with the view of Fed Chairman Ben S. Bernanke, who this week told Congress a “nascent” recovery requires rates of zero to 0.25 percent for an “extended period.” The Kansas City Fed chief dissented last month from such language in a statement by the Federal Open Market Committee. This month he said that promising to keep rates low is inappropriate as the crisis fades. Hoenig said today that current interest rates are “extremely low and obviously unsustainable.” The rate on overnight loans among banks has been close to zero since December 2008. Hoenig has voiced concern in speeches this year that inflation could surge within a few years with the economic recovery gaining strength.
  • Banks Face Tighter Capital Rules Under EU Overhaul. Banks may have to put aside more money to guard against risks arising from credit derivatives and also face limits to the amount of debt they can hold relative to assets under proposals to overhaul capital requirements in the European Union. Tighter rules are needed even though there’s a risk the measures “could slow recovery” in the economy, the European Commission said in a statement today. The agency is seeking views from banking supervisors and companies on the likely impact of its plans, which also include calls for lenders to set aside capital in good times to use as a buffer in hard times.
  • Obama Friend's Bid for Senate Threatened by Bank's Losses. Fridays are getting tense in the Chicago campaign office of Alexi Giannoulias, the Democrat seeking the U.S. Senate seat once held by President Barack Obama. That’s the day regulators announce which troubled banks they’ll close. Broadway Bank in Chicago, owned by Giannoulias’s family, must attract at least $75 million in capital by late April to meet terms of a consent order with the Federal Deposit Insurance Corp. prompted by losses on commercial real estate loans. Even if successful, the family could lose control before November’s election, dealing a blow to Democrats and an Obama friend. “The last thing that Alexi Giannoulias needs right now is another round of bad news stories and stories raising questions about the family’s business,” said Stu Rothenberg. editor of the non-partisan Rothenberg Political Report. “The one thing you don’t want to spend in a campaign is a lot of time defending yourself.”
  • NYC Storm Dumps Almost 20 Inches, Grounding Flights. The snow won’t stop anytime soon, and forecasters are already watching the track of a storm that may arrive next week. The weather service expects 4 to 6 inches more by the end of today and perhaps more tomorrow. Newark received 1.25 inches of rain in the new storm, breaking a record set in 1965, followed by 6.7 inches of snow that shattered the mark set in 1934, according to the weather service.
  • Chicago Purchasing Managers Index Increased to 62.6.
  • Hedge-Fund Assets Offshore May Be Exempted From Reporting Rule. U.S. investors wouldn’t have to report large holdings in offshore hedge funds and private-equity firms this year under a proposed revision of Treasury Department disclosure rules designed to detect offshore tax evasion and money laundering. The Financial Crimes Enforcement Network, a Treasury agency, proposed regulations yesterday effectively sparing fund investors from a June 30 deadline to report offshore accounts that exceed more than $10,000.
  • NuVasive(NUVA) Gains on Insurer Coverage for Spine Therapy. Nuvasive Inc., the maker of surgical treatments for the spine, gained the most ever in Nasdaq trading after the company said health insurer Aetna Inc.(AET) approved reimbursement for its surgical spine treatment.
Wall Street Journal:
The Business Insider:
  • Apple(AAPL): 3 Paths to $325+ Per Share. A Morgan Stanley analyst offers one scenario where AAPL could hit $425 by 2012. In a report to clients issued Friday, Morgan Stanley's Katy Huberty offered one of her patented risk-reward snapshots of Apple (AAPL), this one even more optimistic than the last, thanks to what she sees as two new catalysts:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (43%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -20. For President Obama, the Approval Index has been lower only once (see trends).
  • 34% Favor More Regulation of Financial System, 47% Opposed.
  • MSNBC's Ed Schultz: Rip out Dick Cheney's Heart. Liberal talk show host Ed Schultz would like to take the heart of former Vice President Dick Cheney —who is recovering from his fifth heart attack — and “rip it out and kick it around and stuff it back in him.” On his radio show Wednesday, Schultz mocked conservatives who have attacked him for going after the health of the former vice president. “You’re damn right, Dick Cheney's heart's a political football,” Schultz said in remarks recorded by the media blog Radio Equilizer. “We ought to rip it out and kick it around and stuff it back in him."
  • The Aftermath of the Health Care Summit: Confusion, Conflict. Democrats wake up after Thursday's health care summit staring down another deadline to get their bill done, exactly four weeks until Easter break. They’ve blown through almost every deadline before, so there’s no guarantee they won’t this time, too. President Barack Obama didn’t help by leaving the door open to compromise with Republicans — even if it takes weeks. So that means a party looking to emerge from the summit with a clear sense of the path forward instead finds itself in the same old place — fighting the clock to finish health care, with an uncertain timeline, a complex legislative path and no idea whether its leaders can muster the votes. "We hope based upon this discussion that we can move forward, but move forward we will,” said House Majority Leader Steny Hoyer. But the truth is, the Democrats are no more certain of getting health care reform done after the summit than they were before. The seven-hour session did little to change the underlying dynamics of the debate.
  • Dem's Call for Charlie Rangel's Gavel. After months of holding ranks, some Democrats are finally turning on House Ways and Means Chairman Charles Rangel (D-N.Y.) in the wake of an ethics committee finding that he violated House rules by accepting a Caribbean junket. Early Friday, Rep. Paul Hodes (D-N.H.) told POLITICO he wants Rangel to quit his powerful committee post — and that was quickly followed by similar statements from a pair of deep south Democrats, Mississippi Rep. Gene Taylor and Alabama Rep. Bobby Bright. Speaker Nancy Pelosi continues to defend Rangel, but lawmakers like Hodes are calling for Rangel’s gavel.
Real Clear Politics:
Financial Times:
  • Hedge Funds Shy Away From Lowering Fees. Just one in 10 hedge fund managers expects to see the fees they charge investors fall in spite of recent underperformance that has seen income sharply reduced, according to a Credit Suisse survey. The industry suffered its heaviest outflows ever in 2008-09 but hedge funds still balk at the idea of cutting the standard “two and 20” fee structure, 2 per cent of assets and 20 per cent of returns, that they charge clients, the poll found. The bank’s survey also found that the average time spent by investors conducting due diligence has risen from 5.8 to 7.5 months. While 41 per cent of funds of funds – the largest single class of hedge fund investor – previously spent three months or less conducting their due diligence, now just 9 per cent do, highlighting the particular pressure they have come under to demonstrate greater rigor in the wake of the Madoff scandal. Hedge funds are also looking to meet the needs of investors keen for so-called managed accounts, which are segregated portfolios tailored to the specific needs of the account holder. The survey found that 47 per cent of respondents already ran one or more managed accounts with a further 39 per cent saying they were investigating how to do so.
  • Spain's biggest real estate companies are lobbying the government to extend a law deferring bankruptcy proceedings for companies that have seen property-price declines wipe out their capital.
Ta Nea:
  • European Union inspectors in Greece found additional measures amounting to 3.6 billion euros are needed to cut the budget deficit to 8.7% of output this year. Inspectors this week found that Greece faces the risk of a deeper recession than forecast and higher interest on debt payments. The economy will shrink 2% this year, compared with a government forecast of .3% growth, and interest payments will be 1 billion euros higher and a target of 1.2 billion euros from cracking down on tax evasion is seen as overly ambitious. Greece's government will announce the measures after meeting with EU Monetary Affairs Commissioner Olli Rehn in Athens next week. The extra measures may include an increase in the value-added tax rate, an additional hike of the fuel levy and higher cuts in public-sector bonuses.

Bear Radar

Style Underperformer:
Small-Cap Value (-.17%)

Sector Underperformers:
Construction (-1.35%), Alt Energy (-.71%) and Papers (-.68%)

Stocks Falling on Unusual Volume:

Stocks With Unusual Put Option Activity:
1) LEN 2) SWN 3) MBI 4) DECK 5) FLR

Bull Radar

Style Outperformer:
Large-Cap Value (+.51%)

Sector Outperformers:
Airlines (+1.50%), Hospitals (+1.15%) and HMOs (+1.10%)

Stocks Rising on Unusual Volume:

Stocks With Unusual Call Option Activity:

Trading LInks

Friday Watch

Evening Headlines
  • Obama May Prohibit Home-Loan Foreclosures Without HAMP Review. The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program. The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
  • Treasuries to Rally, Outperform Bunds, Goldman Sachs(GS) Says. Investors should buy Treasuries and sell German bunds, betting on a deceleration in inflation and U.S. economic growth, Goldman Sachs Group Inc. said. “Treasury yields have formed a top and have the scope to fall over the coming months, both outright and against German bunds, on the back of a further decline in core inflation and a weakening of activity data,” Francesco Garzarelli, chief interest-rate strategist in London at Goldman, wrote in a research report. “Investors have not fully taken on board the ongoing decline in core inflation.”
  • Wheat Prices May Slump on Harvests, Stockpile Release. Global wheat prices may plunge 14 percent in the next few months as new harvests enter the market, or sooner if Russia releases its stockpiles, the nation’s second-largest exporter said. The average world export price may decline to $150 a metric ton from $175 a ton now, Chris Vanhonacker, commercial director at Rosinteragroservis, known as Rias, said in an interview in Singapore today. “It will be the biggest catastrophe” for the wheat market if Russia releases 3 million tons from its stockpiles, he said. Wheat has slumped 62 percent from a record $13.4950 a bushel two years ago as farmers increased plantings, boosting competition between the U.S., Canada, Russia and Australia. Russia plans to export as much as 3 million tons of grain from its inventories, Emmanuel Jayet the head of agricultural research at Societe Generale SA, said this week. Russia, the third-largest wheat exporter, plans to increase its share of global trade as exports may advance by as much as 32 percent in the next five years, Russian Grain Union Chairman Arkady Zlochevsky said in an interview in Singapore today.
  • New York Faces Cash Squeeze in March, Budget Chief Megna Says. New York faces a cash squeeze in March and expects to delay $1.4 billion of payments, almost twice as much as it temporarily withheld two months ago, state budget director Robert Megna said. New York, the third most populous U.S. state, held back $750 million of payments to schools and local governments when its general fund ended December with a record deficit of $577 million. The state paid bills that month by borrowing from other accounts. Delays in March will be needed “to continue orderly operation of government,” Megna said today at a hearing in Albany. Postponements may affect income tax refunds as well as payments to schools and not-for-profit organizations, he said.
  • NYC May Get 16 Inches as Snowstorm Gains Strength, Hangs On. A winter storm warning for New York City is in effect until 6 p.m. tomorrow as a system carrying heavy, wet flakes and gusty winds threatens to smother the region with as much as 16 inches, forecasters said. Airlines canceled hundreds of flights as the snow moved in around 8 a.m. today. Speculation that the snows would reduce demand for motor fuel contributed to a drop in gasoline futures. Gasoline for March delivery declined 6.17 cents, or 2.9 percent, to settle at $2.037 a gallon on the New York Mercantile Exchange. “Demand numbers are going to be annihilated by the bad weather,” said Ray Carbone, president of Paramount Options Inc. in New York, a trader at the Nymex. More than 900 flights were halted across the Northeast today, most of them in New York, Boston and Philadelphia. That represents about 2 percent of the 50,000 flights scheduled in the U.S. this time of year, according to, a Web site that tracks aircraft movements.
  • Schumer Says China's Weak Yuan Should Prompt U.S. Trade Duties.
  • Clinton Calls U.S. Deficit, Debt a National Security Concern. The record U.S. budget deficit and debt are a growing national security concern, U.S. Secretary of State Hillary Clinton told a panel of lawmakers reviewing the foreign affairs budget for fiscal year 2011. “We have to address this deficit and the debt of the U.S. as a matter of national security, not only as a matter of economics,” Clinton told the House Appropriations Subcommittee on State, Foreign Operations and related programs. “I do not like to be in a position where the United States is a debtor nation to the extent that we are, with the projections” of deficits “going far into the future,” Clinton said. The White House is projecting a record $1.6 trillion budget deficit for the 2010 fiscal year, following a $1.4 trillion shortfall in 2009. The nonpartisan Congressional Budget Office projects that deficits over the next 10 years will total $6 trillion.
  • Japan Deflation Persists as Consumer Prices Fall 1.3%. Japan’s consumer prices fell for an 11th month in January, putting renewed pressure on policy makers to eradicate deflation that hampers the recovery.
Wall Street Journal:
  • U.S. Misses Deadline For Offshore Drilling Study. The Obama administration failed to meet a deadline for submitting a court-ordered analysis of the environmental effects of offering new leases to drill in Alaskan coastal waters, the oil industry said Thursday. A federal appeals court last year had invalidated the Interior Department's current five-year plan for offering oil and gas leases, saying that the government hadn't conducted an adequate review of the environmental impact in the Beaufort, Bering and Chukchi seas off the Alaskan coast. The Interior Department's Minerals Management Service has been conducting such a review and is supposed to respond to the court. "We are disappointed MMS has again missed a deadline to provide the court with the analysis it ordered last April," Jack Gerard, the chief executive of the American Petroleum Institute, said in a statement. "This will delay investment decisions, delay the production of much-needed oil and natural gas and delay the creation of much-needed jobs."
  • Push to Oversimplify at Climate Panel. In the next few days, the world's leading authority on global warming plans to roll out a strategy to tackle a tough problem: restoring its own bruised reputation. A months-long crisis at the Intergovernmental Panel on Climate Change has upended the world's perception of global warming, after hacked emails and other disclosures revealed deep divisions among scientists working with the United Nation-sponsored group. That has raised questions about the panel's objectivity in assessing one of today's most hotly debated scientific fields. The problem stems from the IPCC's thorny mission: To take sophisticated and sometimes inconclusive science, and boil it down to usable advice for lawmakers. To meet that goal, scientists working with the IPCC say they sometimes faced institutional bias toward oversimplification, a Wall Street Journal examination shows. The tension within the IPCC stretches back a decade or more, according to interviews with scientists and a review of hundreds of IPCC documents and emails. It has complicated the panel's work on matters ranging from the study of tree rings to the proper use of massively complex climate computer models. The IPCC shared a Nobel Peace Prize with former Vice President Al Gore in 2007. The group won for a report that declared climate change is "unequivocal" and is "very likely" caused by emissions of carbon dioxide and other greenhouse gases due to human activity. As climate change gained public attention in recent decades, some IPCC-affiliated scientists privately expressed concerns that conclusions were at risk of getting oversimplified. Keith Briffa, a climate scientist at East Anglia, expressed this worry in emails to colleagues in 1999, as work intensified on the IPCC's third major report, published in 2001. Mr. Briffa's particular concern: tree rings. The problem: Using Mr. Briffa's tree-ring techniques, researchers in the 1990s built charts suggesting that temperatures in the late 20th century were at the highest levels in a millennium. The charts were dubbed "hockey sticks" because they showed temperatures relatively flat for centuries, then angling much higher recently. But Mr. Briffa fretted about a potential problem. Thermometers show that temperatures have risen since the 1960s, but tree-ring data don't move in tandem, and sometimes show the opposite. In the same 1999 email, Mr. Briffa said tree-ring data overall did show "unusually warm" conditions in recent decades. But, he added, "I believe that the recent warmth was probably matched about 1,000 years ago." In other words, maybe the chart shouldn't resemble a hockey stick.
  • Hedge Funds Try 'Career Trade' Against Euro. The euro, which traded at $1.51 in December, now trades around $1.35. With traders using leverage—often borrowing 20 times the size of their bet, accentuating gains and losses—a euro move to $1 could represent a career trade. If investors put up $5 million to make a $100 million trade, a 5% price move in the right direction doubles their initial investment. "This is an make a lot of money," says Hans Hufschmid, a former senior Salomon Brothers executive who now runs GlobeOp Financial Services SA, a hedge-fund administrator in London and New York. It is impossible to calculate the precise effect of the elite traders' bearish bets, but they have added to the selling pressure on the currency—and thus to the pressure on the European Union to stem the Greek debt crisis. There is nothing improper about hedge funds jumping on the same trade unless it is deemed by regulators to be collusion. Regulators haven't suggested that any trading has been improper. Through small gatherings, hedge funds can discuss similar trades that can feed on each other, in moves similar to those criticized by some investors and bankers in 2008. Then, big hedge-fund managers, such as Greenlight Capital Inc. President David Einhorn, who also was at this month's euro-dominated dinner, determined that the fortunes of Lehman Brothers Holdings and other firms were dim and bet heavily against their securities, accelerating their decline. An SAC manager, Aaron Cowen, who pitched the group on the bearish bet, said he viewed all possible outcomes relating to the Greek debt crisis as negative for the euro, people familiar with the matter say. SAC's trading position on the euro is unclear. George Soros, head of the $27-billion asset fund manager, warned publicly last weekend that if the European Union doesn't fix its finances, "the euro may fall apart." Through a spokesman for Soros Fund Management, he declined to comment for this article. Again, derivatives, known as credit default swaps, are playing a part in the current trading. Some of the largest hedge funds, including Paulson & Co., which manages $32 billion, have bought such swaps, traders say, which act as insurance against a default by Greece on its sovereign debt. Traders view higher swaps prices as warning signs of potential default. Since December, the prices of such swaps have more than doubled, reflecting investors concerns about a default by Greece. Paulson had built a large bearish position on Europe, people familiar with the matter say, including swaps that will pay out if Greece defaults on its debt within five years. Paulson since has closed out that position and has taken the other side of the bet, leaving the firm with a bullish stance now, a person familiar with the matter says. In a statement, Paulson declined to comment "on individual positions," saying it "does not manipulate or seek to destabilize securities in any markets." Late last year, hedge funds bought swaps insuring the debt of Portugal, Italy, Greece and Spain, and began making bearish euro bets. More recently, the hedge funds have sold these swaps to banks looking to "hedge," or protect, their holdings of European government bonds, traders say. In the past year, the overall value of swaps insuring against a Greek debt default has doubled, to $84.8 billion, according to Depository Trust & Clearing Corp. But the net amount that sellers would actually pay in a default rose just modestly over the same period, up only 4% to $8.9 billion, the DTCC says. This suggests that banks and others have bought and sold roughly equal amounts of swaps to hedge their positions, traders say. Between Dec. 9 and 11, some big European and U.S. banks made bearish calls on the euro by buying one-year euro "puts." Puts give the holder the right to sell an investment at a specified price by a set date. The pressure on the euro soon began building. The currency fell another 1.3% on Dec. 16 when Standard & Poor's downgraded Greek sovereign debt. At that point, some large investors including asset manager BlackRock Inc. had bearish bets on the euro, believing that it couldn't sustain the levels at which it was then trading and that Europe's financial recovery would lag that of the U.S., according to people familiar with their position. On Jan. 28 and 29, analysts from Goldman Sachs Group Inc. took a group of investors on a field trip to meet with banks in Greece. The group included representatives from about a dozen different money managers, say attendees, including Chicago hedge-fund giant Citadel Investment Group, the New York hedge fund Eton Park Capital Management, and Paulson, which sent two employees, say people who were there. Eton Park declined to comment. During meetings with the Greek deputy finance minister and executives from the National Bank of Greece, among other banks, some investors raised tough questions about the state of the country's economy, according to these people. Donald Morgan, head of hedge-fund Brigade Capital, told the group he believed Greek debt is an early domino to fall in a contagion that eventually will hit U.S. companies, municipalities and Treasury securities. In a separate move last week, traders from Goldman, Bank of America Corp.'s Merrill Lynch unit, and Barclays Bank Plc were helping investors place a particularly bearish bet on the euro, traders say. The trade involved an inexpensive put option that will provide its holder a big payoff if the euro falls to the level of a single U.S. dollar within a year. Known as a "tail-risk" trade because its probability is low, the euro-dollar parity put is a cheap way of ensuring that if the euro sinks dramatically within a year, an investor will generate big returns.
  • Greece Delays Bond Sale Amid New Turmoil. Planned Auction, Watched as Test of Country's Financial Outlook, Is Pushed to Next Week After Strike, S&P Warning. Greece delayed plans to issue a 10-year bond until next week, after the government announces a new austerity package that will reduce spending between €2 billion and €2.5 billion ($2.7 billion to $3.4 billion), people familiar with the situation said. The government hopes to raise €3 billion to €5 billion from the bond offering. The delayed offering, along with the S&P warning and widening bond spreads, rattled investors across Europe Thursday and reignited expectations that Athens will require more than rhetorical support from European Union leaders to solve its fiscal crisis. The new bond deal is widely seen as a test of the Greek government's ability to raise money in the capital markets to finance its operations and retire old debt. A successful bond sale will demonstrate that the market believes either that Greece can fix its fiscal problems or that Europe will come up with an effective bailout to solve short-term worries. An unsuccessful auction would exacerbate the sovereign-debt fears gripping financial markets and could force other European nations to move more quickly to support Greece. The Greek stock market slid nearly 3% Thursday, and the euro slipped 0.5% against the dollar.
  • Rangel Blamed for Ethics Offense. The House ethics committee has found Ways and Means Chairman Charles Rangel, a New York Democrat, violated House rules by failing to properly disclose financial details of trips to the Caribbean, senior congressional officials said Thursday. After several months of investigation, the ethics panel determined Mr. Rangel didn't inform the ethics committee of the corporate source of funds for trips that took place in 2007 and 2008. The panel determined his staff knew the trips were paid for by corporations, and found that Mr. Rangel—who says he didn't know—should still be held accountable, officials said.
  • Oil Industry Booms - in North Dakota. State Is Riding High as Firms Develop Better Ways to Tap Huge Bakken Shale Deposit, Raising Hopes for U.S. Production. A massive oil reserve buried two miles underground has put North Dakota at the center of a revolution in the U.S. oil industry, a shift that has radically altered the fortunes of this remote area. The Bakken Shale deposit has been known and even tapped on occasion for decades. But technological improvements in the past two years have taken what was once a small, marginally profitable field and turned it into one of the fastest-growing oil-producing areas in the U.S. The Bakken Shale had helped North Dakota oil production double in the past three years, surging to 80 million barrels in 2009—tiny relative to the more than seven billion barrels consumed by the U.S. every year, but enough to vault the state past Oklahoma and Louisiana to become the country's fourth-biggest oil producer, after Texas, Alaska and California. If current projections hold, North Dakota's oil production could pass Alaska's by the end of the decade.
  • Fed's Posture Improves in the Senate. The Federal Reserve is gaining support in the Senate and could emerge from the overhaul of financial-market rules as the primary regulator of the country's largest financial firms, according to people involved in the negotiations.
  • Defining ObamaCare Down. We're all free-market moderates now.
  • China's 71% Small-Cap Stock Premium Signals Peak. The rally in China’s small-cap stocks that lifted valuations to a record premium above the largest companies’ shares is a signal to sell, according to three of the country’s biggest money managers. China’s CSI 500 Index of companies with a median market value of $841 million trades at valuations 71 percent above the CSI 300 Index, up from 31 percent a year ago and near the all- time high of 77 percent in December, based on estimated price- to-earnings ratios compiled by Bloomberg.
  • JPMorgan(JPM) CEO: No Dividend Raise; Watching Economy. JPMorgan Chase's chief executive said he is in no hurry to raise the bank's dividend due to an economy that he warned could still be threatened by a "double dip" scenario. "We don't mind holding extra capital right now because we don't know what's going to happen," Jamie Dimon said on Thursday during an investor day presentation. "There are huge potential negatives out there." He added that he wanted to see consistent rise in employment numbers over a period of months before increasing the bank's dividend. Dimon, who has emerged as one of the industry's most prominent voices after his bank, the nation's second largest, weathered the credit crisis better than most, also said he was opposed to the Obama administration's proposed consumer protection agency. "We're getting into the capricious and arbitrary punitive behavior" on the regulatory side, he said, although he insisted he wanted better consumer regulation and supported a systemic regulator.
NY Times:
  • Plan to Seek Use of U.S. Contracts as a Wage Lever. The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers, according to White House officials and several interest groups briefed on the plan. By altering how it awards $500 billion in contracts each year, the government would disqualify more companies with labor, environmental or other violations and give an edge to companies that offer better levels of pay, health coverage, pensions and other benefits, the officials said. Because nearly one in four workers is employed by companies that have contracts with the federal government, administration officials see the plan as a way to shape social policy.
  • Apple(AAPL) Angles For China. Apple is planning an aggressive expansion into the world's most populous country, aiming to launch 25 new stores in China over the next two years.
San Francisco Chronicle:
  • Exclusive: What Happens Next in Health Care. After a brief period of consultation following the White House health care reform summit, congressional Democrats plan to begin making the case next week for a massive, Democrats-only health care plan, party strategists told POLITICO. A Democratic official said the six-hour summit was expected to “give a face to gridlock, in the form of House and Senate Republicans.” Democrats plan to begin rhetorical, and perhaps legislative, steps toward the Democrats-only, or reconciliation, process early next week, the strategists said. Democrats plan to take up the president's comprehensive, $950 billion plan— referred to on the Hill as “the big bill.” The alternative would be a smaller — or “skinny” — bill that would provide less coverage and cost less. But that would amount to starting the complex process over. “It’s probably the big bill or nothing,” said a top Democratic aide.
  • Torture Add Forces House Democrats to Pull Bill. House Democratic leaders were forced to pull a major intelligence funding bill off the House floor after one of their own colleagues attached an amendment that would have jailed CIA agents who engaged in “cruel, inhuman and degrading treatment” during interrogations. If the amendment had become law, any CIA agent who then was involved in waterboarding a suspect would have faced up to 15 years in jail. If the detainee later died, the agent could have been sentenced to life behind bars. The amendment defined "cruel, inhuman and degrading treatment" to include many of the "enhanced" interrogation techniques that the Bush Justice Department declared legal. Forcing a detainee to stand in a stressful position, placing insects near the detainee, and waterboarding were all approved and eventually used during CIA interrogations. One of President Obama's first acts as commander-in-chief limited CIA interrogators to techniques allowed under the Army Field Manual. Those no-longer permitted techniques would be punishable with jail time under the amendment.
USA Today:
  • Construction Unemployment Still on the Rise. As the jobless rate hovers around 10%, unemployment in construction jumped to 24.7%, highest on record since 1976. Construction has accounted for nearly a quarter of all job losses the past year, though the industry employs 4.3% of non-farm employees. Relief is not imminent. The industry will likely slash 50,000 jobs a month the first half of 2010 before a housing rebound offsets a continuing free fall in the commercial sector by late this year, says Ken Simonson, chief economist for Associated General Contractors of America. He predicts another 5% of construction workers will lose their jobs in 2010. While the stimulus should have a bigger impact in 2010, it's affecting only 5% of construction jobs each year, his trade group says.
  • SEC Examines Destabilizing Effects of CDS. Securities regulators said on Thursday they are examining the potential abuses and destabilizing effects of credit default swaps, a financial instrument that can be used to speculate on an issuer's credit worthiness. The Securities and Exchange Commission comments come after Federal Reserve Chairman Ben Bernanke said regulators were looking at how Goldman Sachs (GS) and other Wall Street companies helped Greece arrange derivative deals. The SEC has said it has more than 50 probes involving credit default swaps, collateralized debt obligations and other derivatives-based instruments. The SEC has already expanded some of its insider trading investigations to examine derivatives and credit default swaps.
  • Flour(FLR) Adds to Weaker Engineering Project Outlook. Fluor Corp (FLR), the largest publicly traded U.S. engineering company, and two rivals gave investors on Thursday few reasons to hope for a dramatic bounce in project investment this year. Fluor reported a lower quarterly profit and cut its 2010 profit outlook as it anticipated only a gradual recovery in capital spending for its clients, with prospects for contracts looking somewhat healthier in the second half. Its shares fell 6 percent.
  • Deckers(DECK) Q4 Beats, Confirms Int'l Distribution Overhaul. Deckers Outdoor Corp's (DECK) fourth-quarter results handily beat market expectations, boosted by sales of its core UGG brand, and the shoe maker forecast a strong 2010, sending shares up as much as 9 percent in trading after the bell.
Financial Times:
  • Financial Crisis Panel to Call Back Bank Chiefs. The commission set up by the US Congress to probe the causes of the 2008 financial market meltdown will interview foreign regulators and put bank executives back on the witness stand. In an interview before the second public hearing of the FCIC that begins on Friday, Mr Angelides, a former California state treasurer, said he was most struck so far in his inquiry by the way in which Goldman Sachs(GS) had been “creating and selling securities and then fully betting against them”. In a reference to the Greek Crisis and the alleged role of securities sold by the bank, Mr Angelides said: “It appears that this action was not confined to creating and selling mortgage securities. It also extended to the creation and selling of foreign debt instruments. I find the practice troubling and it raises questions about fair dealing and trust and transparency in the marketplace.”
Financial Times Deutschland:
  • German Banks Avoid Investing in Greek Debt. German banks will avoid new investment in Greek bonds. After Eurohypo AG and Hypo Real Estate AG announced they would eschew Greek debt in their next financing rounds, Deutsche Postbank AG also said it won't invest new funds in Greece. While Deutsche Bank AG will continue to assist Greece in bond sales, it won't invest in the country's bonds. Officials close to state banks Bayerische Landesbank and Landesbank Baden-Wuerttemberg said investing new money in Greek bonds was "hardly imaginable."
21st Century Business Herald:
  • China is carrying out stress testing in labor-intensive industries such as textiles and toymaking to simulate the impact of yuan appreciation on profits. A rough estimate shows that the profitability of the industries falls 1% following each 1% of appreciation, citing senior industry officials.
Evening Recommendations
  • Reiterated Buy on (LTD), target $28.
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.50 +4.0 basis points.
  • S&P 500 futures +.30%
  • NASDAQ 100 futures +.21%
Morning Preview
Earnings of Note
  • (IPG)/.25
  • (FCN)/.73
  • (TIE)/.01
  • (FRO)/.11
  • (MIR)/.52
Economic Releases
8:30 am EST
  • 4Q GDP is estimated to rise +5.7% versus a prior estimate of a +5.7% gain.
  • 4Q Personal Consumption is estimated to rise 2.0% versus a prior estimate of a +2.0% gain.
  • 4Q GDP Price Index is estimated to rise +.6% versus a prior estimate of a +.6% gain.
  • 4Q Core PCE is estimated to rise +1.4% versus a prior estimate of a +1.4% gain.
9:45 am EST
  • Chicago Purchasing Manager for February is estimated to fall to 59.7 versus a reading of 61.5 in January.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for February is estimated to rise to 73.9 versus a prior estimate of 73.7.
10:00 am EST
  • Existing Home Sales for January are estimated to rise to 5.5M versus 5.45M in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, Fed's Kocherlakota speaking, Fed's Tarullo speaking, Fed's Evans speaking, NAPM-Milwaukee, Bloomberg FCI Monthly, (SNDK) investor day, (ETN) analyst meeting, (PEG) analyst day and the Morgan Stanley Basic Materials Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and commodity stocks in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.