Sunday, October 31, 2010

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by

BOTTOM LINE: I expect US stocks to finish the week mixed as investment manager performance angst, short-covering, less financial sector pessimism, mostly positive earnings reports, diminishing economic fear, seasonal strength and buyout speculation offsets a "sell the good news" reaction to the US election and the Fed's QE2 announcement. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.

Friday, October 29, 2010

Market Week in Review

S&P 500 1,183.26 +.01%*


The Weekly Wrap by

*5-Day Change

Weekly Scoreboard*


  • S&P 500 1,183.26 +.01%
  • DJIA 11,118.49 -.13%
  • NASDAQ 2,507.31 +1.13%
  • Russell 2000 703.35 -.01%
  • Wilshire 5000 12,263.83 +.13%
  • Russell 1000 Growth 540.07 +.33%
  • Russell 1000 Value 598.20 -.04%
  • Morgan Stanley Consumer 723.15 -.46%
  • Morgan Stanley Cyclical 927.42 -.44%
  • Morgan Stanley Technology 627.61 +1.55%
  • Transports 4,754.29 -.01%
  • Utilities 404.86 -.48%
  • MSCI Emerging Markets 46.01 +.04%
  • Lyxor L/S Equity Long Bias Index 1,000.13 +.83%
  • Lyxor L/S Equity Variable Bias Index 856.72 +.18%
  • Lyxor L/S Equity Short Bias Index 781.45 -1.46%
  • NYSE Cumulative A/D Line +104,681 +.04%
  • Bloomberg New Highs-Lows Index +282 -147
  • Bloomberg Crude Oil % Bulls 12.0 -29.41%
  • CFTC Oil Net Speculative Position +125,271 +24.24%
  • CFTC Oil Total Open Interest 1,394,673 -1.98%
  • Total Put/Call .87 +1.16%
  • OEX Put/Call .74 -31.48%
  • ISE Sentiment 147.0 +12.21%
  • NYSE Arms 1.19 +19.0%
  • Volatility(VIX) 21.20 +12.88%
  • G7 Currency Volatility (VXY) 12.89 +2.87%
  • Smart Money Flow Index 9,446.0 -.31%
  • Money Mkt Mutual Fund Assets $2.807 Trillion +.9%
  • AAII % Bulls 51.23 +3.24%
  • AAII % Bears 21.60 -14.25%
Futures Spot Prices
  • CRB Index 300.67 +1.16%
  • Crude Oil 81.41 -.64%
  • Reformulated Gasoline 206.02 +.09%
  • Natural Gas 4.07 +9.85%
  • Heating Oil 223.88 -1.66%
  • Gold 1,359.80 +2.29%
  • Bloomberg Base Metals 233.32 -1.70%
  • Copper 374.70 -1.89%
  • US No. 1 Heavy Melt Scrap Steel 328.67 USD/Ton unch.
  • China Hot Rolled Domestic Steel Sheet 4,264 Yuan/Ton -.58%
  • S&P GSCI Agriculture 458.98 +4.17%
  • ECRI Weekly Leading Economic Index 123.10 +.90%
  • Citi US Economic Surprise Index +1.70 +6.4 points
  • Fed Fund Futures imply 72.1% chance of no change, 27.9% chance of 25 basis point cut on 11/3
  • US Dollar Index 77.03 -.43%
  • Yield Curve 226.0 +5 basis points
  • 10-Year US Treasury Yield 2.60% +4 basis points
  • Federal Reserve's Balance Sheet $2.278 Trillion -.43%
  • U.S. Sovereign Debt Credit Default Swap 40.45 -1.45%
  • Illinois Municipal Credit Default Swap 271.0 -4.99%
  • Western Europe Sovereign Debt Credit Default Swap Index 148.0 +6.54%
  • 10-Year TIPS Spread 2.15% +3 basis points
  • TED Spread 18.0 +1 basis point
  • N. America Investment Grade Credit Default Swap Index 94.02 -2.83%
  • Euro Financial Sector Credit Default Swap Index 93.80 -2.63%
  • Emerging Markets Credit Default Swap Index 204.54 -2.33%
  • CMBS Super Senior AAA 10-Year Treasury Spread 245.0 +7 basis points
  • M1 Money Supply $1.764 Trillion -.50%
  • Business Loans 601.0 +.02%
  • 4-Week Moving Average of Jobless Claims 453,300 -1.2%
  • Continuing Claims Unemployment Rate 3.5% unch.
  • Average 30-Year Mortgage Rate 4.23% +2 basis points
  • Weekly Mortgage Applications 828.90 +3.17%
  • ABC Consumer Confidence -47 -1 point
  • Weekly Retail Sales +2.70% +10 basis points
  • Nationwide Gas $2.81/gallon -.02/gallon
  • U.S. Cooling Demand Next 7 Days 9.0% below normal
  • Baltic Dry Index 2,707 -.48%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 +25.0%
  • Rail Freight Carloads 235,606 -.66%
  • Iraqi 2028 Government Bonds 93.18 +2.27%
Best Performing Style
  • Mid-Cap Growth +1.16%
Worst Performing Style
  • Small-Cap Value -.45%
Leading Sectors
  • Gaming +6.25%
  • Semis +4.06%
  • Gold +3.96%
  • Airlines +3.78%
  • Software +2.81%
Lagging Sectors
  • Medical Equipment -1.14%
  • REITs -1.79%
  • Insurance -2.05%
  • Computer Hardware -2.30%
  • HMOs -2.86%
One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Higher into Final Hour on Tax Policy/Election Optimism, Earnings Strength, Short-Covering, Buyout Speculation

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.12 +1.15%
  • ISE Sentiment Index 157.0 +22.66%
  • Total Put/Call .87 unch.
  • NYSE Arms 1.30 +18.41%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.02 bps +.03%
  • European Financial Sector CDS Index 93.66 bps +.64%
  • Western Europe Sovereign Debt CDS Index 148.0 bps +1.95%
  • Emerging Market CDS Index 204.02 bps +.76%
  • 2-Year Swap Spread 16.0 +1 bp
  • TED Spread 18.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .11% -1 bp
  • Yield Curve 227.0 -2 bps
  • China Import Iron Ore Spot $149.10/Metric Tonne -.33%
  • Citi US Economic Surprise Index +1.70 +2.2 points
  • 10-Year TIPS Spread 2.16% unch.
Overseas Futures:
  • Nikkei Futures: Indicating -27 open in Japan
  • DAX Futures: Indicating +18 open in Germany
  • Higher: On gains in my Tech and Ag 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 slightly higher, at session highs, despite recent equity gains, rising terrorism fears and eurozone sovereign debt worries. On the positive side, Road & Rail, Education, Gaming, Wireless, Computer Service, Disk Drives, Semi and Computer Hardware shares are especially strong, rising 1.0%+. Small-caps and cyclicals are outperforming. The Transportation Index continues to trade well and is poised to take out its 52-week high over the coming weeks. Lumber is rising +3.69%. The California Municipal CDS is falling -8.55% to 243 bps. On the negative side, Coal, Alternative Energy and Medical Equipment shares are under pressure, falling more than 1.0%. The Portugal sovereign cds is gaining +4.89% to 377.57 bps, the Greece sovereign cds is rising +7.34% to 817.10 bps, the China sovereign cds is gaining +7.18% to 63.47 bps and the US sovereign cds is gaining +5.82% to 40.34 bps. The broad market continues to consolidate recent gains on below average volume, which is healthy. Most negative news is still being ignored, while positives continue to be rewarded. So many investors are positioning for a "sell the news" reaction to next week's Fed meeting and US election that any expected weakness may be relatively mild and short-term in nature. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.

Today's Headlines

  • U.S. Economy Grew 2% as Consumer Spending Rises. The U.S. economy expanded at a 2 percent annual rate in the third quarter and inflation cooled, underscoring the views of Federal Reserve policy makers who say more stimulus will be needed to spur growth. The increase in gross domestic product matched the median forecast of economists surveyed by Bloomberg News and followed a 1.7 percent second-quarter gain, Commerce Department figures showed today in Washington. Other reports showed business activity increased this month and consumer confidence weakened.
  • Ireland, Greece Debt Woes Reverse Sovereign Default Swaps Rally. A bondholder showdown in Ireland, slumping Greek tax revenue and political gridlock in Portugal reversed Europe’s biggest sovereign debt rally in three months. The average price of credit-default swaps on Portugal, Italy, Ireland, Greece and Spain rose to 406.5 basis points from 363.5 last week, according to CMA. That’s the biggest weekly increase since Aug. 13. Governments of Europe’s so-called peripheral nations are struggling to lower their budget deficits even as they impose public spending cuts and increase taxes.
  • Stocks May Jump 10% After Fed Quantitative Easing Announcement, Biggs Says. U.S. stocks may rise 10 percent should the Federal Reserve announce a program of asset purchases known as quantitative easing, and emerging-market shares will keep rising, according to hedge-fund manager Barton Biggs. “The conventional wisdom is the markets are going to probably sell off,” Biggs, managing partner of New York-based Traxis Partners LLC, said in an interview today with Betty Liu on Bloomberg Television’s “In the Loop.” “Investors may in fact get a “surprise” with “another 10 percent rally.” Biggs said the “most attractive plays” for investors are technology stocks and pharmaceuticals. He said oil-services companies have fallen too much.
  • Whitman-Brown Governor's Race in California is Now a 'Toss-Up,' Poll Shows. The race for governor of California between Democrat Jerry Brown and Republican Meg Whitman is now rated a “toss-up” instead of “leans Democrat,” according to Rasmussen Reports.
  • Brazil Says Offshore Oil Field May be Americas' Biggest Find in 34 Years. Brazil said the government’s Libra field may hold “gigantic” reserves of as much as 15 billion barrels, almost twice initial estimates, which would make it the biggest discovery in the Americas in more than three decades. Oil was found below a layer of salt at the first exploration well at the government’s field, according to an e-mail sent today by the national petroleum regulator, known as ANP. Brazil drilled to a depth of 5,410 meters (17,750 feet) at the well and may reach 6,500 meters by December, the ANP said. A deposit of 15 billion barrels would be almost twice the size of state-controlled Petroleo Brasileiro SA’s nearby Tupi field, would eclipse Brazil’s total current reserve base and also be the biggest find in the Americas since Mexico discovered Cantarell in 1976.

Wall Street Journal:
  • Sinopec in Talks With BP(BP) to Develop Shale Gas in China. China Petroleum & Chemical Corp. (SNP), or Sinopec, said Friday the company is in talks with BP PLC (BP.LN) to explore and develop shale gas resource in China, adding that it plans to bid for six more shale gas blocks to step up its investment in cleaner-burning fuels in the country.
  • Recovery in Building is Forecast for 2011. The nation's construction industry, virtually on life support during the economic downturn, will begin a slow recovery next year, according to a forecast set to be released Friday. Next year, the value of new projects that start construction is expected to climb to $445.5 billion, an 8% rise from this year when that figure hit a post-recession low, according to the closely watched McGraw-Hill Construction forecast.
  • India's Major Crisis in Microlending. The microlending movement that was supposed to help lift millions of people in India out of poverty has in recent weeks fallen into chaos. Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.
Business Insider:
  • Interview With Rep. Randy Neugebauer: The Fed Is In The Price-Control Business. Congressman Randy Neugebauer (Republican, Texas) has questioned the Fed's decision to target higher inflation and says there's no way we know it will work. "We've tried to spend and borrow our way into we're being told to print," he said. Neugebauer doesn't think Fed Chairman Ben Bernanke and the FOMC should be targeting higher prices for assets. "The Fed is almost in the price control business," he said, noting that's what he thought markets were supposed to do. The concern for Neugebauer is that inflation might hit commodity prices, and not wages, raising the cost things like food for consumers. He's also worried continued low interest rates are hitting seniors and pensioners who rely on the interest growth from their savings for spending. And all of this action from the Fed might have no positive impact at all, according to Neugebauer. He fears that businesses and individuals are too concerned about paying down debt and cutting costs to take on new loans and spend, no matter how cheap they are.
Zero Hedge:
New York Post:
  • Google(GOOG) Yearns to Make YouTube a TV Network. Google is pitching YouTube not only as a popular Web destination, but as a content channel to have a place in the living room alongside TV networks like ABC, CBS and NBC. As Google targets the TV set, it is also making a play for TV-sized ad buys rather than smaller online budgets.
New York Times:
  • U.S. Solar-Power Projects Forecast to Taper Off. The boom in construction of solar-power plants in California and Arizona is unlikely to last because it depends on temporary U.S. government incentives, according to David Crane, NRG Energy's(NRG) CEO.
LA Times:
  • Redbox Planning to Expand Onto the Web Next Year. As more consumers leave DVDs behind for digital downloads, the company that brought movie vending machines to grocery stores nationwide is following the audience. Redbox unveiled Thursday a new digital strategy that by next year will expand the number of movies offered to consumers directly in their homes -- a move the Illinois-based company hopes will set the stage for longer-term growth and soothe investors anxious about its prospects.
New York Daily News:
  • Suspicious UPS Packages Across East Coast, Including One in Brooklyn, Under Investigation. Authorities are investigating a series of suspicious UPS packages across the East Coast - including a possible explosive inside a delivery truck in Brooklyn, law enforcement sources said. The discovery of an improvised device in a package in the United Kingdom triggered the massive response in the United States. Cargo planes were grounded at airports in Newark and Philadelphia and the NYPD bomb squad surrounded a UPS truck at MetroTech in downtown Brooklyn, officials said. "We're investigating what we believe is a possible explosive device on board that truck," said top NYPD spokesman Paul Browne. The Manhattan Bridge was closed and two buildings in the office complex were evacuated Friday morning.
ABC News:
  • Democratic Closing Argument: Personal Attacks. Democrats Attack Over Personal Issues, Republicans Over Policy. It's not just the Aqua Buddha and David Vitter's prostitute, Democratic candidates across the country are closing out the campaign with personal attacks on Republican candidates, sometimes digging up decades-old legal problems.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).
  • Persistent Low Rates Not Helping Economy - Blackstone(BX) COO Says. A near-zero interest rate policy is not aiding a U.S. economic recovery, as it reduces income to retirees and offers little help to companies sitting on vast amounts of cash, the COO of private equity giant Blackstone Group said on Thursday. "I think that traditional economic theory which says that the lower the interest rate the more stimulation you get in the economy ... misses the point," said Tony James, chief operating officer of Blackstone, which has assets under management of over $100 billion. "When interest rates get too low for too long, you get a structural shift in the economy and lower rates can actually be counterproductive." James said low rates do not help U.S. companies sitting on record amounts of cash and that have no need to borrow money. Leveraged companies which have locked in rates are also not aided. "And I believe that American industry in general has plenty of capacity," he said. "So I don't see that lower rates are going to particularly encourage American industry to borrow and build." It also doesn't help people who depend on money market accounts and savings accounts to live on, he said, as it gives them less income to spend. "So it actually net-net doesn't have any stimulative effect, it has a counter-stimulative effect by reducing income," he said. James' views are shared in part by two top asset managers, Bill Gross, co-founder of Pacific Investment Management Co, and Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co, who lambasted the Fed's loose monetary policy this week. The U.S. central bank's bond asset purchasing program "is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme," Gross wrote in his monthly investment outlook posted on Pimco's Website. Gross said the United States is in "'a liquidity trap,' where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there." Grantham, who helps oversee over $100 billion at Grantham Mayo Van Otterloo & Co, said Fed policy has resulted in "extraordinary destructiveness" and "ruinous cost."
  • US Senators Raise Concerns on Oil Sands Pipeline. Nearly a dozen U.S. Senators on Friday raised questions about the need for a proposed $7 billion pipeline that they said will bring "dirty oil" from Canadian oil sands to U.S. refineries and significantly increase the country's reliance on fossil fuels. The lawmakers, 10 Democrats and one independent, said the State Department needs to answer several key questions before deciding whether to approve TransCanada's application to build the 2,000-mile Keystone XL pipeline. Led by Democrats Patrick Leahy, of Vermont, and Jeff Merkley, of Oregon, the letter said the department should examine whether greater use of fuel-efficient technologies and advanced biofuels could offset the need for the pipeline. The department should also consider whether expanded use of oil sands crude will harm U.S. attempts to reduce oil consumption, the lawmakers said. This is the latest in a series of critiques that various lawmakers have lobbed at State as the department considers whether to greenlight the Keystone project, which is expected transport 510,000 barrels per day of crude from Alberta to the U.S. Gulf coast. Clinton angered some lawmakers and environmental groups this month when she said her department was "inclined" to approve the pipeline because of energy security issues. Supporters say the project will ensure a stable source of oil and lessen dependence on oil from the Middle East and Venezuela.
  • U.S. Economic Growth Gauge Rises to 3-Week High: ECRI. A measure of future U.S. economic growth rose to a 3-week high in the latest week, while the index's annualized growth rate rose to a 19-week high, a research group said on Friday.
The Globe and Mail:
  • Have Talked With 15 Bidders: Potash(POT). says it has been in discussions with 15 potential bidders for the company as it works to trump Potash Corp. of Saskatchewan Inc.BHP Billiton Ltd.’s $38.6-billion (U.S.) hostile bid, but needs more time for a possible counteroffer to come forward given the size, complexity and funding required to do the transaction, new regulatory documents filed Friday show. The “highly charged political environment” around approving such a bid is also a factor weighing on timing of talks, Potash Corp. says.

Bear Radar

Style Underperformer:

  • Large-Cap Value (-.18%)
Sector Underperformers:
  • 1) Coal -1.68% 2) Medical Equipment -.91% 3) Alt Energy -.66%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) EWJ 2) AVNR 3) AMSC 4) PWER 5) VVUS
Stocks With Most Negative News Mentions:
  • 1) WWE 2) LYB 3) OSTK 4) AMAG 5) G

Bull Radar

Style Outperformer:

  • Small-Cap Growth (+.57%)
Sector Outperformers:
  • 1) Computer Services +.97% 2) Agriculture +.96% 3) Gaming +.72%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) AMAG 2) CSTR 3) MWW 4) DECK 5) VRSN
Stocks With Most Positive News Mentions:
  • 1) CEPH 2) RMD 3) AEM 4) NIHD 5) FRX

Friday Watch

Evening Headlines


  • Junk Sets October Record, Mortgage Bonds Rally: Credit Markets. Sales of junk bonds in the U.S. set a record for October as returns topped investment-grade debt and more borrowers were raised than cut. Government-backed mortgage bonds may beat Treasuries by the most in at least 10 years.
  • Irish, Spanish Banks Failing to Kick ECB Habit: Euro Credit. Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds. Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. Overall, the region’s banks cut their funding to 514.1 billion euros ($716 billion), the least since Lehman Brothers Holdings Inc.’s collapse in September 2008, according to ECB figures. “The ECB is going to have to support these smaller banks for many years to come,” said Simon Maughan, an analyst at MF Global Ltd. in London, who has tracked the industry for more than 15 years. “The ECB has to keep these banks alive and hope and pray that the local regulators force them to restructure and make them profitable again.”
  • Potash(POT) in 'Active' Talks on Alternatives to BHP's(BHP) Bid. Potash Corp. of Saskatchewan Inc. Chief Executive Officer Bill Doyle said anyone who thinks BHP Billiton Ltd. will be the only qualified bidder for the Canadian fertilizer maker should “be patient.” Potash Corp. is engaged in “very active conversations” about alternatives to BHP’s $40 billion hostile offer and is pursuing “all options,” Doyle said yesterday from Potash Corp. offices in Saskatoon, Saskatchewan. “I laugh when I see people presume or assume a certain outcome,” Doyle said in a telephone interview. “I just say, ‘Please be patient.’” He declined to elaborate.
  • Southwest(LUV) Sees Atlanta as Its Largest City on AirTran(AAI) Deal. Atlanta, home to the world’s busiest airport, may become Southwest Airlines Co.’s largest city in the coming years when the low-fare carrier buys AirTran Holdings Inc., an executive said. AirTran has 202 daily departures from Atlanta, and Southwest may “do well north of that,” Bob Jordan, Southwest’s executive vice president for strategy and planning, said today at a media event at the carrier’s Dallas headquarters.
  • EU Bows to Germany's Call for Permanent Debt Mechanism, Snubs Vote Curbs. German Chancellor Angela Merkel won European Union backing for a rewrite of EU treaties to create a permanent debt-crisis mechanism by 2013 to prevent a repeat of the Greece-led shock that jolted the euro. At a summit in Brussels, Merkel made less headway with calls to bar high-deficit countries from voting on EU decisions, dramatizing the limits of Germany’s power over the 27-nation bloc. “All agreed that there has to be a permanent crisis mechanism,” Merkel told reporters early today after the summit’s first session. “All agreed that a limited treaty change will be necessary.”
  • Japan Output Slide, Deeper Deflation Are 'Negative Surprise' for Economy. Japanese factory production slumped by more than double the pace economists forecast and deflation deepened in September, adding to signs that a stronger yen is causing the economy’s expansion to lose momentum. Industrial output fell 1.9 percent in September from August and core consumer prices declined 1.1 percent from a year earlier after a 1 percent drop in August, government reports showed today in Tokyo. The median forecast of 27 economists surveyed by Bloomberg News was for output to drop 0.6 percent. Companies plan deeper cuts in production this month, a survey released in today’s report showed, as a slowing global expansion and the yen’s surge to a 15-year high against the dollar are prompting companies to scale back. “This was a real negative surprise,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “It’s highly likely that Japan’s economy will contract in the current quarter.”
  • Samsung Third-Quarter Profit Rises as Chip Sales Gain. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, said third-quarter profit increased 17 percent to a record, driven by gains in sales of computer-memory chips. Net income climbed to 4.46 trillion won ($4 billion), the Suwon, South-Korea based company said in a statement today. The average of 10 analyst estimates compiled by Bloomberg was 4.5 trillion won. Sales increased 12 percent to 40.2 trillion won, in line with a preliminary earnings estimate on Oct. 7.
  • Sengoku Says No Sign China Has Resumed Exports of Rare-Earth Minerals. Japan said it has no evidence China resumed exports of rare-earth metals, which were disrupted last month during a territorial dispute that soured relations between Asia’s two largest economies. “As of yesterday, there is no information about new cargo movements,” Chief Cabinet Secretary Yoshito Sengoku told reporters in Tokyo. “The Japanese government intends to use every opportunity to ask China to improve the situation regarding export restrictions.”

Wall Street Journal:
  • Clinton Asked Democrat to Quit Florida Senate Race. Former President Bill Clinton tried to persuade Florida Democratic Rep. Kendrick Meek to drop out of his U.S. Senate race and support Gov. Charlie Crist's independent candidacy in hopes of thwarting a victory by Republican Marco Rubio. People familiar with the matter said the former president and other top national Democrats worry a win by the charismatic Mr. Rubio, a 39-year-old Cuban-American, would make him a political phenomenon capable of boosting the GOP's chances with Hispanic voters.
  • The Tax Me More State. Two initiatives that would further punish California. The Tax Foundation announced this week that California has the second worst business tax climate of the 50 states, with only New York more hostile to employers. Congratulations, but it gets worse. If a pair of ballot measures pass next week, the Golden State could soon take the tax lead and make even Albany look like Hong Kong. Proposition 24 would raise $1.3 billion of new taxes on businesses, while Proposition 25 would allow the state legislature to pass budgets and tax increases with a simple majority vote, instead of the current mandated two-thirds supermajority.
  • Prop 23 and the Green Jobs Myth. Californians could protect a million or so jobs by overturning the state's self-imposed carbon dioxide limits.
  • Tokyo Hit by Claims of Insider Trading. Japan’s financial regulator and the Tokyo Stock Exchange are investigating recent trading activity following allegations of widespread insider trading ahead of new share issues by Japanese companies.
  • Microsoft(MSFT) Earnings, Revenue Easily Beat Estimates. Microsoft shares popped in late trading Thursday as the company turned in a profit and sales that both topped Street targets, helped by higher sales of its flagship Windows and Office software and the launch of the latest blockbuster Halo video game. The world's biggest software company said it earned $5.4 billion, or 62 cents a share in its fiscal first quarter, up 51 percent from $3.6 billion, or 40 cents a share last year. Sales for the most recent quarter jumped to $16.2 billion, from $12.92 billion last year. Wall Street analysts who monitor Microsoft estimated on average that the Redmond, Wash., company would report a profit of 55 cents a share on sales of $15.8 billion, according to data accumulated by Thomson Reuters.Shares of Microsoft were changing hands about 2 percent higher in extended trading Thursday.
Business Insider:
  • Roubini: The Obama Presidency is Heading for a Fiscal Trainwreck. The risk, however, is that something on the fiscal side will snap, and the bond vigilantes will wake up. The trigger could be a debt rollover crisis in a major US state government, or perhaps even the realization that congressional gridlock means bipartisan solutions to our medium-term fiscal crisis is mission impossible. Only then will our politicians suddenly remember that, on top of our federal debt, the US suffers from unfunded social security and Medicare liabilities, state and local government debt, and public pension bills that add up to many multiples of US GDP.
Zero Hedge:
NY Times:
  • Debt Fuels Private Equity Revival. The Blackstone Group and the Carlyle Group demonstrated on Thursday that the private equity industry is thriving amid a weak economy — but they did so in nearly opposing ways.
CNN Money:
  • The Fed's 'Tax on the Consumer'. Investors have been cheering about the prospect of the Federal Reserve pumping more money into the economy, but some experts warn that move may wind up hurting consumers' wallets. Since Bernanke's comments in August, the dollar index has dropped 7%, while commodities -- which are priced in dollars -- have surged. Crude oil has jumped 14%, while gold has spiked 8%. Prices for cotton, corn, sugar, wheat and coffee also have all hit new highs during the past two months. Ultimately, those lofty prices will trickle down to consumers in the form of higher prices for coffee, bread, pizza, gas, clothing and more. "The problem I have with QE2, is it behaves like a tax on the consumer," said David Giroux, a fund manager at T. Rowe Price. "People want to believe it's a free lunch for the economy, but it's definitely not. Next year, we're going to be paying more at the gas pump and the grocery store." American households already spend $340 billion a year on gasoline, according to U.S. economist Paul Dales of Capital Economics. Since late August, the price of a gallon of gas has jumped 4.8%. All it would take is another 10% increase, and the average cost per gallon would rise above $3, adding $51 billion a year to your household tab, he said. Even a modest 5% rise in food prices would force a family to add about $350 a year to their grocery budget.
Fox News:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
USA Today:
  • First Solar(FSLR) Profit Up, But Margins Weaken. First Solar (FSLR), the top photovoltaic solar maker, posted a 16 percent increase in third-quarter profit and raised its full-year profit forecast, but weaker margins and rising costs pushed its shares down more than 6 percent.
  • Monster(MWW) Raises FY Outlook on Strong Bookings, Shares Up. Monster Worldwide Inc, which runs the Monster and HotJobs recruiting websites, raised its full-year outlook on strong bookings as economies around the world showed signs of improvement, sending its shares up 10 percent in extended trade.
  • Coinstar(CSTR) Up on Redbox DVD Growth, Outlook. Coinstar Inc, the electronic kiosk company, raised its full-year outlook on Thursday after posting a big jump in sales at its DVD rental unit Redbox, sending its shares up more than 10 percent after the market's close.
  • UGG Sales Boost Deckers(DECK) Q3; Co Ups FY View. UGG boots maker Deckers Outdoor Corp topped third-quarter estimates on Thursday as demand for its popular sheepskin boots remained strong, prompting the company to raise its full-year outlook. Shares of the company rose 6 percent after market.
  • BMC Software(BMC) Q2 Profit Tops Street, Ups 2010 View. Business software maker BMC Software Inc posted quarterly results above Wall Street expectations, helped by strong bookings, and raised its profit outlook for 2010. The Houston, Texas-based company's shares were up 3 percent at $45.15 in extended trade.
  • Maxim Integrated(MXIM) Q1 Tops Street View, Sees Strong Q2. Chipmaker Maxim Integrated Products Inc posted first-quarter results above Wall Street expectations, helped by design wins and continued demand, and forecast a strong second quarter. Shares of the company were up 6 percent at $20.85 in extended trade.
Financial Times:
The Economist:
  • Labor and the Left. The president has done little to change his party's relationship with organized labor. And that is because the Democrats, more so than ever perhaps, are dependent on union support. On top of the hefty financial backing the unions are providing, a recent Pew study showed that, unlike independents, unions are holding firm in their support for the Democrats. But the favorability rating of unions has fallen sharply in recent years, especially among independents (dropping from 54% in 2007 to 38% this year), and the public's appetite for smaller, more efficient government has grown quite large. Bad policy is turning into bad politics, which may finally compel the Democrats to change the tenor of their dealings with the unions at both the state and federal level. Unions, facing alternatives like Mr Christie, might also be more amenable to compromise. Or perhaps this all just so much wishful thinking. Regardless, as Mr DiSalvo notes, even the recent state efforts to cut union pensions and limit benefits "deal only with the symptoms of the looming state fiscal crisis—not with its underlying causes." It may take a state default before the very existence of public-sector unions is debated more vigorously.
Nikkei English News:
  • China may introduce a stockpiling system for rare-earth metals nationwide after a successful test by Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., citing people close to the Ministry of Land and Resources. Accumulating reserves has made prices easier to maintain through control of supply.
China Securities Journal:
  • Chinese banks effectively raised lending rates by cutting mortgage rate discounts for first homes to 85%, from 70%, citing bankers.
  • China is preparing to classify molybdenum as a so called national mining resource to limit the mining of the minor metal starting next year.
China Business News:
  • China may set new requirements for banks within two years as part of the nation's "macro prudent policy," citing a person familiar with the situation. The requirements may involve banks' capital adequacy ratio, provision coverage ratio, leverage ratio and liquidity ratio.
China Daily:
  • Preventing inflation should be made the Chinese government's top priority, Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary. Credit expansion has continued this year on a "a large scale," fueling excess liquidity, Yi wrote. That's led to increases in property prices and will "inevitably" also fuel gains in consumer prices, Yi wrote.
Evening Recommendations
  • Upgraded (CPO) to Buy, target $51 .
  • Reiterated Buy on (LEA), target $105.
  • Reiterated Buy on (NIHD), target $55.
Night Trading
  • Asian equity indices are -1.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 104.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 97.0 +1.25 basis points.
  • S&P 500 futures -.31%
  • NASDAQ 100 futures -.21%.
Morning Preview Links

Earnings of Note
  • (AXL)/.39
  • (ACI)/.37
  • (B)/.28
  • (CVX)/2.15
  • (CI)/1.06
  • (CMC)/.09
  • (CEG)/.64
  • (D)/1.07
  • (EL)/.77
  • (ITT)/.99
  • (MRK)/.82
  • (QSII)/.49
  • (COL)/.94
  • (SNE)/.06
  • (WY)/.10
Economic Releases
8:30 am EST
  • Advance 3Q GDP is estimated to rise +2.0% versus a +1.7% gain in 2Q.
  • Advance 3Q Personal Consumption is estimated to rise +2.5% versus a +2.2% gain in 2Q.
  • Advance 3Q GDP Price Index is estimated to rise +1.8% versus a +1.9% gain in 2Q.
  • Advance 3Q Core PCE is estimated to rise +1.0% versus a +1.0% gain in 2Q.
  • The Employment Cost Index for 3Q is estimated to rise +.5% versus a +.5% gain in 2Q.
9:45 am EST
  • The Chicago Purchasing Manager for October is estimated to fall to 58.0 versus a reading of 60.4 in September.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for October is estimated to rise to 68.0 versus a reading of 67.9 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Bloomberg FCI Monthly and the NAPM-Milwaukee could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Thursday, October 28, 2010

Stocks Slightly Higher into Final Hour on Tax Policy/Election Optimism, QE2 Expectations, Less Financial Sector Pessimism, Diminishing Economic Fear

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.05 +1.64%
  • ISE Sentiment Index 128.0 +64.10%
  • Total Put/Call .87 +3.57%
  • NYSE Arms 1.22 +36.21%
Credit Investor Angst:
  • North American Investment Grade CDS Index 93.99 bps -.77%
  • European Financial Sector CDS Index 94.92 bps +1.22%
  • Western Europe Sovereign Debt CDS Index 145.17 bps +1.87%
  • Emerging Market CDS Index 202.48 bps -2.15%
  • 2-Year Swap Spread 15.0 -1 bp
  • TED Spread 16.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .12% -1 bp
  • Yield Curve 229.0 -2 bps
  • China Import Iron Ore Spot $149.60/Metric Tonne -.13%
  • Citi US Economic Surprise Index -.50 +1.2 points
  • 10-Year TIPS Spread 2.16% unch.
Overseas Futures:
  • Nikkei Futures: Indicating +4 open in Japan
  • DAX Futures: Indicating +16 open in Germany
  • Higher: On gains in my Tech, Medical and Biotech long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite recent gains, some earnings disappointments and eurozone sovereign debt worries. On the positive side, Gaming, Education, Hospital, I-Banking, Steel, Oil Tanker, Software, Drug and Gold shares are especially strong, rising 1.0%+. Lumber is rising +3.17% and copper is gaining +.24%. The 10-year yield is rising +8 bps to 2.72%. On the negative side, Disk Drive, Computer, Oil Service and Alt Energy shares are under pressure, falling more than 1.0%. The Ireland sovereign cds is rising +5.07% to 460.24 bps and the Portugal sovereign cds is gaining +4.81% to 363.21 bps. The Emerging Markets Sovereign CDS Index is rising +5.09% to 194.28 bps. The broad market continues to consolidate recent gains on below average volume, which is healthy. Most negative news is still being ignored, while positives continue to be rewarded. Even early weakness in Naz heavyweight (AAPL) couldn't provide the bears badly needed traction in the tech sector. Moreover, the DJIA is almost back in positive territory despite substantial weakness in (MMM). I suspect stocks will end the day higher tomorrow after the release of the 3Q GDP report. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.

  • Ireland Debt-Default Swaps Advance on Anglo Bond Standoff: Credit Markets. The cost of insuring against a default on Ireland’s debt surged to the highest in a month as Anglo Irish Bank Corp. note holders headed for a showdown with the nation’s government. Creditors holding a “blocking position” of Anglo Irish subordinated bonds plan to oppose a debt exchange worth 20 percent of their 1.6 billion euros ($2.2 billion) of securities, adviser Houlihan Lokey said in a statement today. The government has said it will legislate to allow it to impose penalties on subordinated creditors while making senior investors whole, while the bank’s chairman, Alan Dukes, said today he won’t negotiate with junior bondholders opposing the exchange. Credit-default swaps insuring Irish sovereign debt jumped 19 basis points to 463, according to data provider CMA. Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of similar-maturity government debt fell 1 basis point to 164 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The spread has narrowed from this year’s high of 201 basis points on June 11. The Standard & Poor’s/LSTA US Leveraged Loan 100 Index rose 0.03 cent to 91.22 cents on the dollar, the highest since May 10. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has returned 1.6 percent this month. The extra yield investors demand to hold emerging-market bonds rather than government debentures rose 1 basis point to 254 basis points, according to JPMorgan Chase & Co data. Credit-default swaps tied to Allied Irish Banks Plc bonds rose 13.5 basis points to 634.5, according to CMA. The extra yield demanded to hold Irish 10-year bonds over German debt rose by about 5 basis points to 424 basis points, approaching the record 449 basis points last month.
  • Jobless Claims Unexpectedly Drop to Three-Month Low. Initial jobless claims decreased by 21,000 to 434,000 in the week ended Oct. 23, the lowest since early July when fewer auto plants than normal closed for retooling, Labor Department figures showed today in Washington. The four-week moving average, a less volatile measure, fell to 453,250, also the lowest since July, from 458,750. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent for a third week in the period ended Oct. 16. Eleven states and territories reported an increase in claims, while 42 reported a decline.
  • Fed Asks Dealers to Estimate Size, Impact of Debt Purchases. The Federal Reserve asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth. “If they buy too much, I think there’s a real chance that rates are going to rise because people are worried about inflation,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
  • Schwarzman Says Fed Easing Won't Make Much Difference. Stephen Schwarzman, chief executive officer of Blackstone Group LP, the world’s biggest buyout firm, said another round of asset purchases by the U.S. Federal Reserve won’t have much of an impact on companies. “It’s not an enormous incentive to do something different with your businesses because rates are down a few basis points,” Schwarzman, 63, said yesterday in an interview with Bloomberg Television’s Margaret Brennan at the UBS Wealth Management Roundtable in New York. “Money’s already quite cheap.”Schwarzman joins hedge-fund managers Paul Tudor Jones, Clifford Asness and Colm O’Shea in casting doubt on the effectiveness of more so-called quantitative easing. Asness, who runs Greenwich, Connecticut-based AQR Capital Management LLC, said he doesn’t expect any long-term effects from such a move. Colm O’Shea, who runs London-based hedge fund Comac Capital LLP, told investors in August that the Fed would “risk its credibility” with a second round of quantitative easing. Jeremy Grantham, chief investment officer of Grantham Mayo Van Otterloo & Co. in Boston, said in a quarterly letter to investors that the Fed’s quantitative easing will be a “more desperate maneuver than the typical low-rate policy.” Tony James, president of New York-based Blackstone, said today he wasn’t convinced pushing borrowing costs lower would have a positive effect on the economy. “I don’t see that lower rates are going to encourage American industry to borrow and build,” James said today on a conference call with reporters. “It has a counter-stimulative effect. I don’t think it works.” Schwarzman said the Dodd-Frank Act, a regulatory overhaul enacted this year that expanded the Fed’s authority to oversee non-bank financial firms deemed “too big to fail,” will prolong the period of slow growth and will “depress the level of recovery” of the U.S. economy.
  • China May Levy Property Tax That's .6% of Value. China may levy a property tax of about 0.6 percent of the value of homes, the Securities Times reported today, citing a person familiar with the situation. First homes will be excluded from the tax, the Shenzhen- based newspaper reported. Work on starting trials of the property tax may start as early as the end of this year, according to the report.
  • Rice Advances for a 13th Day, Longest Wining Streak Since at Least 1989. Rice rose for a 13th day in Chicago, the longest winning streak since at least 1989, after the Philippines said storms caused 523,013 metric tons of crop losses. The Philippines, the world’s biggest rice buyer, last year produced 9.8 million tons of the grain and imported 2.2 million tons, according to data from the U.S. Department of Agriculture. Rice has added 17 percent since Oct. 11, the last time futures fell. The current streak of gains is the longest for data compiled by Bloomberg going back to 1989.
  • Taiwan Semiconductor Posts $1.5 Billion Quarterly Profit, Beating Estimate. Taiwan Semiconductor Manufacturing Co., the world’s largest contract manufacturer of chips, forecast fourth-quarter sales and profitability that beat analysts’ estimates as demand for electronics climbs. Revenue will be at least NT$107 billion ($3.5 billion) in the three months ending Dec. 31, the Hsinchu, Taiwan-based company said today. That surpasses the NT$104.7 billion average of 18 analyst estimates compiled by Bloomberg. TSMC posted a 54 percent increase in third-quarter net income to NT$46.9 billion, beating analysts’ estimate of NT$40 billion. TSMC joins smaller rival United Microelectronics Corp. in forecasting a better-than-expected outlook as demand for electronics including smartphones improves. The company’s spending on equipment in 2011 will rise above this year’s record $5.9 billion budget as revenue growth exceeds an estimated 14 percent gain for the custom-chip market, TSMC said. “There’s still considerable demand that we cannot schedule production for,” Chairman and Chief Executive Officer Morris Chang said at an investor conference in Taipei.
  • Syniverse(SVR) to Be Taken Private by Carlyle in $2.6 Billion Deal. Syniverse Holdings Inc., the maker of mobile-phone messaging and network technology, said it will be taken private by Carlyle Group in a $2.6 billion buyout. Carlyle, the world’s second-largest private-equity firm, is offering investors $31 a share in cash, Syniverse said today in a statement. That’s a 30 percent premium to the Tampa, Florida- based company’s closing price yesterday.
  • Chicago's Bond Rating Cut One Level by Fitch. Chicago, the third most-populous U.S. city, had its credit ranking on $6.8 billion in general- obligation bonds cut one level to AA- by Fitch Ratings. It was the second time in less than three months that Fitch has lowered the city’s debt grade as it uses reserves and one- time revenue measures to balance its budget. “While the economy remains broad and diverse, the city’s financial position has weakened as reflected by multiple years of budget gaps and structural imbalance, as well as a large and rapidly growing unfunded pension obligation,” Fitch said today in a report.

Wall Street Journal:
  • US Education Department Releases Higher Education Rule Package. The U.S. Department of Education on Thursday will release a series of new rules governing higher education, including restrictions on recruiter compensation and new requirements on disclosing graduation and job placement rates at career-focused programs. The rules, which have been in the works for more than a year, go into effect July 1.
  • Mortgage Rates Seen Rising to 5.1% in 2011. Mortgage rates may be as low as they will go, with the average 30-year fixed-rate home loan on course to rise after hovering for months at historically low levels.
  • Money-Market Inflows $24.09 Billion in Latest Week. Assets in money-market funds climbed $24.09 billion in the week ended Tuesday, more than rebounding from a steep outflow the prior week, as investors added money to prime and government funds.
  • IRS Paid Out $111 Million in Erroneous Stimulus Tax Breaks. The U.S. Internal Revenue Service had difficulty implementing new tax benefits in 2010, paying $111 million in erroneous benefits related to the stimulus law, a Treasury Dept. report said.
  • CME(CME) Profit Climbs 21%. Robust trade in derivatives contracts linked to commodities, interest rates and indexes helped to lift CME Group Inc.'s third-quarter earnings 21%, offsetting a rise in expenses. The world's biggest futures-exchange operator also continued to deleverage its balance sheet, paying down $300 million in debt over the quarter in a move seen clearing the way for a share buyback.
Business Insider:
  • California Chamber of Commerce Fights Pot Proposition. A California ballot initiative that would legalize adults’ recreational use of small amounts of marijuana is raising questions about its potential impact on workplaces in the Golden State should the measure pass on Nov. 2.
New York Times:
  • Stores Push Black Friday Into October. Attention bargain shoppers! It is October — and Black Friday specials are here.
  • Tax Shortfalls Spur New Fear on Europe's Recovery Bid. With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors. Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it.
  • China is Said to Resume Shipping Rare Earth Minerals.
NY Post:
  • Wash and Weep. A new worry has emerged for cash-strapped shoppers: higher clothing prices. That's right, on top of a shaky job market, high unemployment and little wage growth, consumers may soon be forced to dig deeper when clothes shopping. The bad news bombshell was dropped yesterday by Jones Group -- the New York-based apparel company that makes department-store staples like Nine West and Anne Klein -- which warned that the rising cost of manufacturing, shipping and raw materials, like cotton, is squeezing margins, and that retailers will likely be forced to raise prices to shore up profits.
  • California Politicians Busted for Spending Taxpayer Money on New York Entertainment. As if New York doesn't have enough crooked politicians of its own . . . The bright lights of Broadway beckoned corrupt California officials to cross the continent and spend taxpayer money on nights at theaters, baseball games and pricey dinners at the Big Apple's finest bistros, authorities charged yesterday.
  • President Obama to Visit Mosque in Indonesia. President Barack Obama will visit one of the world’s largest mosques when he makes good on a long-delayed promise to visit Indonesia, the island nation where he lived briefly as a child. The president will visit Istiqlal Mosque in Jakarta — the largest mosque in Southeast Asia and the third largest Muslim house of worship in the world — during his swing through the country Nov. 9-10.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
  • 65% Favor Getting Rid of Entire Congress and Starting Over. Let’s face it: Most Americans don’t have much use for either of the major political parties and think it would be better to dump the entire Congress on Election Day. A new Rasmussen Reports national telephone survey finds that 65% of Likely U.S. Voters say if they had the option next week, they would vote to get rid of the entire Congress and start all over again. Only 20% would opt to keep the entire Congress instead.
USA Today:
  • Doctor-Owned Hospitals Race to Beat Medicare Deadline. At the Cypress Pointe Surgical Hospital here, construction workers scrambled on a recent day to turn a mud pit into a parking lot and put other finishing touches on the $35 million physician-owned facility. They are on a tight deadline. The health care overhaul law closes the door on future physician-owned hospitals, requiring new ones to be open and certified by Medicare by Dec. 31. Otherwise, they'll be barred from taking part in Medicare, the health program for the elderly, as well as other federal health programs. That would be a fatal blow to most hospitals because about half of their revenue comes from those programs.
  • Saudi Prince Says Moving N.Y. Mosque Would Respect 9/11 'Wounds'.
    A Saudi prince who has aided the imam spearheading Park51, the proposed Islamic center two blocks from Ground Zero, says it would be better to shift to another site not associated with the Sept. 11 attacks. In an interview with the Dubai-based Arabian Business magazine, Prince Alwaleed bin Talal says moving the center, which includes a mosque, other education and recreation facilities would respect the wounds still felt by New Yorkers. Associated Press says this reportedly the prince's first public comments on the dispute.
  • Hispanics in U.S. More Divided Over Illegal Immigrants. Hispanics are growing more divided about how they view illegal immigration, and native-born Hispanics aren't as convinced of the contributions of illegal immigrants as they used to be, according to a study released today. Hispanics are split when asked to assess the effect of illegal immigration on Hispanics living in the United States: 29% say they've had a positive impact, 31% negative and 30% believe it made no difference, according to the study from the non-partisan Pew Hispanic Center. That is a sharp decline from a 2007 survey, when 50% of Hispanics said illegal immigrants were having a positive impact.
  • The Fed is Fueling the Catastrophe of Fast Rising Raw Materials Prices. Is the world running out of food, alongside oil, metals, water and much else? The answer to this question, according to a recent OECD and UN Food and Agriculture Organisation report is a definitive no; global agricultural production is on track to satisfy the expected long-term increase in demand, the OECD reckons. Yet it's little thanks to public policy, which in combination with the current craze among financial speculators for commodities, seems hell bent on driving up prices to what for millions of the world's poor may be starvation levels. There are two main ways in which policymakers are insidiously interfering with the usual rules of supply and demand for raw materials, and myriad different smaller ones. We'll leave aside the smaller ones, such as China's attempt to leverage its monopoly of rare earth metals for geo-political purposes, and concentrate instead on the two biggies. One is the policy of ultra-cheap money in advanced economies to fight the economic crisis; and the other, more commodity-specific one, is massive public subsidy for the production of bio-fuels. Food is being elbowed out by pursuit of "clean fuel".

Bear Radar

Style Underperformer:

  • Small-Cap Value (-.47%)
Sector Underperformers:
  • 1) Oil Service -1.72% 2) Disk Drives -1.57% 3) Computer Hardware -1.35%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) VRSN 2) REE 3) MCP 4) MMM 5) AVP
Stocks With Most Negative News Mentions:
  • 1) RAD 2) WWE 3) MDU 4) DKS 5) MAM

Bull Radar

Style Outperformer:

  • Large-Cap Value (+.24%)
Sector Outperformers:
  • 1) Gaming +3.03% 2) Steel +1.48% 3) Hospitals +1.20%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) BAX 2) VRSN 3) WMB 4) CMCSK 5) SKX
Stocks With Most Positive News Mentions:
  • 1) GD 2) HRS 3) CTB 4) A 5) MCD

Thursday Watch

Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 107.0 +4.0 basis points.
  • Asia Pacific Sovereign CDS Index 98.75 +3.0 basis points.
  • S&P 500 futures +.20%
  • NASDAQ 100 futures +.06%.
Morning Preview Links

Earnings of Note
  • (WY)/.11
  • (ACI)/.36
  • (QSII)/.50
  • (B)/.28
  • (EL)/.77
  • (CPN)/.41
  • (CEG)/.64
  • (CI)/1.06
  • (ITT)/.99
  • (CVX)/2.14
  • (D)/1.07
  • (MRK)/.83
  • (MSTR)/1.00
  • (CMC)/.08
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to rise to 455K versus 452K the prior week.
  • Continuing Claims are estimated to fall to 4430K versus 4441K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • None of note
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Wednesday, October 27, 2010

Stocks Lower into Final Hour on Rising Sovereign Debt Angst, Profit-Taking, REIT Sector Earnings Jitters, Commodity Weakness

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Declining
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 21.40 +5.79%
  • ISE Sentiment Index 71.0 -14.46%
  • Total Put/Call .85 -7.61%
  • NYSE Arms .81 -11.54%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.72 bps +1.28%
  • European Financial Sector CDS Index 94.0 bps +3.45%
  • Western Europe Sovereign Debt CDS Index 142.50 bps +2.89%
  • Emerging Market CDS Index 207.48 bps +1.15%
  • 2-Year Swap Spread 16.0 -1 bp
  • TED Spread 16.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% +1 bp
  • Yield Curve 231.0 +6 bps
  • China Import Iron Ore Spot $149.80/Metric Tonne -.07%
  • Citi US Economic Surprise Index -1.70 +2 points
  • 10-Year TIPS Spread 2.16% -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +3 open in Japan
  • DAX Futures: Indicating +30 open in Germany
  • Slightly Lower: On losses in my Medical and Retail long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just modestly lower despite today's headwinds. On the positive side, Paper, Internet, Software, Computer, Semi, Disk Drive, Computer Service, Bank, I-Banking, Biotech, Education and Airline shares are all higher on the day. "Growth" shares are outperforming "value" shares again. The SOX Index is jumping +2.87% and looks poised to break out of its 6 month trading range, which is a major positive. The XAL Index is hitting another 52-week high today. (XLF) has traded well today considering (IYR) weakness and pessimism towards bank shares. Lumber is rising +1.62% despite overall commodity weakness. The 10-year yield is rising +8 bps to 2.72%. There is an unusual number of stocks rising on volume today given the losses in the major averages. The Libor-OIS, TED and 2-Year swap spreads are down despite today's jump in sovereign debt angst. On the negative side, Restaurant, Road & Rail, Gold and Construction shares are under pressure, falling more than 1.5%. The Greece sovereign cds is jumping +12.25% to 765.78 bps, the Ireland sovereign cds is rising +3.55% to 438.48 bps, the China sovereign cds is rising +5.42% to 58.70 bps and the Portugal sovereign cds is gaining +3.59% to 347.56 bps. The Emerging Markets Sovereign CDS Index is rising +4.66% to 190.98 bps. While today's sovereign cds jumps are concerning, it is too early to anticipate another meaningful move higher is underway. The broad market continues to consolidate recent gains on below average volume, which is healthy. The bears still show no ability to gain meaningful traction despite today's potential downside catalysts. Action in the shares of (BRCM) and (FFIV) should give the tech bears pause. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, tech sector optimism, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.