Friday, September 30, 2011

Market Week in Review

S&P 500 1,131.42 -.44%*


The Weekly Wrap by

*5-Day Change

Weekly Scoreboard*


  • S&P 500 1,131.42 -.44%
  • DJIA 10,913.30 +1.32%
  • NASDAQ 2,415.40 -2.73%
  • Russell 2000 644.16 -1.27%
  • Wilshire 5000 11,676.50 -.70%
  • Russell 1000 Growth 527.38 -1.48%
  • Russell 1000 Value 557.50 +.20%
  • Morgan Stanley Consumer 686.20 +.49%
  • Morgan Stanley Cyclical 765.15 -.72%
  • Morgan Stanley Technology 557.26 -1.79%
  • Transports 4,189.37 -.70%
  • Utilities 433.38 +.42%
  • MSCI Emerging Markets 36.29 +1.11%
  • Lyxor L/S Equity Long Bias Index 931.82 -1.48%
  • Lyxor L/S Equity Variable Bias Index 847.06 -2.24%
  • Lyxor L/S Equity Short Bias Index 644.15 +1.11%
  • NYSE Cumulative A/D Line 118,291 +2.92%
  • Bloomberg New Highs-Lows Index -786 +2,032
  • Bloomberg Crude Oil % Bulls 29.0 +26.09%
  • CFTC Oil Net Speculative Position 137,686 -13.93%
  • CFTC Oil Total Open Interest 1,380,562 +1.13%
  • Total Put/Call 1.24 +7.83%
  • OEX Put/Call 1.98 +53.49%
  • ISE Sentiment 89.0 -39.46%
  • NYSE Arms 3.89 +352.32%
  • Volatility(VIX) 42.96 +4.14%
  • S&P 500 Implied Correlation 90.28 +8.55%
  • G7 Currency Volatility (VXY) 14.32 -7.50%
  • Smart Money Flow Index 9,861.890 -2.42%
  • Money Mkt Mutual Fund Assets $2.634 Trillion +.50%
  • AAII % Bulls 32.51 +28.35%
  • AAII % Bears 46.80 -2.50%
Futures Spot Prices
  • CRB Index 298.15 -1.23%
  • Crude Oil 79.20 -1.70%
  • Reformulated Gasoline 253.81 +.39%
  • Natural Gas 3.67 -2.69%
  • Heating Oil 277.93 -1.10%
  • Gold 1,622.30 -2.08%
  • Bloomberg Base Metals 203.53 -.05%
  • Copper 315.20 -6.48%
  • US No. 1 Heavy Melt Scrap Steel 418.33 USD/Ton -.32%
  • China Hot Rolled Domestic Steel Sheet 4,616 Yuan/Ton -2.02%
  • UBS-Bloomberg Agriculture 1,517.37 -2.41%
  • ECRI Weekly Leading Economic Index Growth Rate -7.20% -50 basis points
  • S&P 500 EPS Estimates 1 Year Mean 95.89 unch.
  • Citi US Economic Surprise Index -29.50 +11.3 points
  • Fed Fund Futures imply 31.7% chance of no change, 68.3% chance of 25 basis point cut on 11/02
  • US Dollar Index 78.80 +.61%
  • Yield Curve 167.0 +6 basis points
  • 10-Year US Treasury Yield 1.92% +9 basis points
  • Federal Reserve's Balance Sheet $2.834 Trillion -.24%
  • U.S. Sovereign Debt Credit Default Swap 52.24 -5.83%
  • Illinois Municipal Debt Credit Default Swap 263.0 +2.62%
  • Western Europe Sovereign Debt Credit Default Swap Index 341.84 -3.74%
  • Emerging Markets Sovereign Debt CDS Index 290.17 +1.50%
  • Saudi Sovereign Debt Credit Default Swap 125.34 -2.60%
  • Iraqi 2028 Government Bonds 80.38 -3.68%
  • China Blended Corporate Spread Index 912.0 +132 basis points
  • 10-Year TIPS Spread 1.76% unch.
  • TED Spread 35.0 -2 basis points
  • 3-Month Euribor/OIS Spread 81.0 -8 basis points
  • N. America Investment Grade Credit Default Swap Index 140.91 +.06%
  • Euro Financial Sector Credit Default Swap Index 254.30 +.27%
  • Emerging Markets Credit Default Swap Index 369.30 +1.54%
  • CMBS Super Senior AAA 10-Year Treasury Spread 301.0 +17 basis points
  • M1 Money Supply $2.106 Trillion -.02%
  • Commercial Paper Outstanding 1,007.6B -2.20%
  • 4-Week Moving Average of Jobless Claims 417,000 -1.30%
  • Continuing Claims Unemployment Rate 3.0% unch.
  • Average 30-Year Mortgage Rate 4.01% -8 basis points
  • Weekly Mortgage Applications 767.93 +9.28%
  • Bloomberg Consumer Comfort -53.0 -.9 point
  • Weekly Retail Sales +4.40% -10 basis points
  • Nationwide Gas $3.45/gallon -.09/gallon
  • U.S. Cooling Demand Next 7 Days 32.0% below normal
  • Baltic Dry Index 1,913 +1.54%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 -7.14%
  • Rail Freight Carloads 248,402 +2.54%
Best Performing Style
  • Large-Cap Value +.20%
Worst Performing Style
  • Mid-Cap Growth -2.45%
Leading Sectors
  • Insurance +4.37%
  • Drugs +2.63%
  • Computer Services +2.63%
  • Telecom +1.77%
  • Defense +1.23%
Lagging Sectors
  • Oil Service -5.16%
  • Airlines -5.62%
  • Coal -6.28%
  • Oil Tankers -7.37%
  • Alternative Energy -7.83%
Weekly High-Volume Stock Gainers (5)
  • HGIC, PNM, SNX, BWC and AL
Weekly High-Volume Stock Losers (6)
Weekly Charts
*5-Day Change

Stocks Falling into Final Hour on Rising Global Debt Angst, Tech/Financial Sector Pessimism, Global Growth Worries, Technical Selling

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 41.34 +6.44%
  • ISE Sentiment Index 97.0 +1.04%
  • Total Put/Call 1.19 -2.46%
  • NYSE Arms 2.51 +203.94%
Credit Investor Angst:
  • North American Investment Grade CDS Index 140.91 +.69%
  • European Financial Sector CDS Index 258.83 +8.32%
  • Western Europe Sovereign Debt CDS Index 342.17 +.92%
  • Emerging Market CDS Index 370.86 +5.75%
  • 2-Year Swap Spread 32.0 +2 bps
  • TED Spread 36.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 165.0 -5 bps
  • China Import Iron Ore Spot $171.50/Metric Tonne -.12%
  • Citi US Economic Surprise Index -29.50 +7.0 points
  • 10-Year TIPS Spread 1.76 -7 basis points
Overseas Futures:
  • Nikkei Futures: Indicating -110 open in Japan
  • DAX Futures: Indicating -42 open in Germany
  • Slightly Lower: On losses in my Tech and Retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, and then covered some
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 falls back near session lows on rising global debt angst, rising tech/financial sector pessimism, global growth worries and technical selling. On the positive side, Biotech shares are rising slightly on the day. The UBS-Bloomberg Ag Spot Index is plunging -3.7% and oil is falling -4.2%. On the negative side, Coal, Alt Energy, Oil Tanker, Oil Service, Agriculture, Steel, I-Banking, Construction, Homebuilding, Gaming, Education, Airline and Road & Rail shares are under severe pressure, falling more than -4.0%. Cyclical shares are substantially underperforming. The tech and financial sectors have also underperformed throughout the day. The 10-year yield is falling too much again, declining -8 bps to 1.92%. Lumber is falling -3.9% and copper is dropping -3.5%. Rice is still close to its multi-year high, rising +26.0% in about 12 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.45/gallon. It is up .31/gallon in about 7 months. The Germany sovereign cds is gaining +5.03% to 112.17 bps, the France sovereign cds is rising +5.2% to 186.33 bps, the Russia sovereign cds is jumping +6.84% to 310.0 bps, the China sovereign cds is soaring +14.22% to 197.32 bps and the Brazil sovereign cds is rising +6.59% to 198.62 bps. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The 3-Month Euro Basis Swap fell -.3 bp to -104.87 bps. The Asia-Pacific Sovereign CDS Index is surging another +2.07% today to a new record 169.60 bps. The China sovereign cds is now at the highest level since March 2009. The China Development Bank Corp cds is rising another +3.5% to 352.52 bps, which is also the highest since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is making another new multi-year high, rising +72.0 bps to 912.0 bps. The Hang Seng, which continues to trade very poorly, fell another -2.3% overnight, leaving it down -23.6% ytd at the lowest level since July 2009. Major European stock indices fell 1-2% today. Brazilian equities are under pressure again, falling -2.3% today and are now down -24.9% ytd. Various global credit angst gauges continue to trend higher despite Europe's efforts, which remains a large negative. Many argue that a global recession is priced into stocks at current levels. However, (IR), which was already down substantially from its highs, lowered guidance and is falling another -12.2%, which is a large broad market negative. Stocks inability to mount much of a short-covering/bargain-hunting rally this week, after such a bad quarter, is also a negative for the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on quarter-end short-covering/window-dressing, lower food/energy prices and bargain-hunting.

Today's Headlines

  • Credit Markets Heading for Worst Quarter Since 2008 in Europe. Corporate credit markets are heading for their worst quarter in Europe since the collapse of Lehman Brothers Holdings Inc. in 2008 as the prospect of a Greek default triggering an economic slump weighs on investors. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings climbed more than 400 basis points since July 1, the biggest rise since the fourth-quarter of 2008 when it surged 456 basis points, according to data compiled by Bloomberg. Relative yields on investment-grade company bonds have increased the most on record, Bank of America Merrill Lynch data show. "The stats speak for themselves," said Jim Reid, head of fundamental strategy at Deutsche Bank AG in London. "You've got a situation where if the European authorities drop the ball it could be worse than 2008." Yield spreads on investment-grade bonds have surged 140 basis points since the start of the quarter to 309 yesterday, the EMU Corporate index of 1,763 securities shows. Markit's Crossover gauge was today up 33.5 basis points to 831.5 basis points, according to JPMorgan Chase & Co. at 12:30 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 7.75 at 198.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 10 basis points to 271 basis points and the subordinated index was up 19 at 517. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 4 basis points to 337, with Italy up 11 basis points to 467, according to CMA. One of the biggest sovereign movers worldwide was China, up 18 basis points to 198, after a gauge of manufacturing contracted for a third month as measures of new orders and export demand declined.
  • European Inflation Unexpectedly Quickens. European inflation unexpectedly accelerated to the fastest in almost three years in September, complicating the European Central Bank’s task as it fights the region’s worsening sovereign-debt crisis. The euro-area inflation rate jumped to 3 percent this month from 2.5 percent in August, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the biggest annual increase in consumer prices since October 2008. Economists had projected inflation to hold at 2.5 percent, according to the median of 38 estimates in a Bloomberg survey. Faster inflation increases pressure on an economy already hurt by tougher austerity measures and waning investor confidence as governments struggle to contain the fiscal crisis. European economic confidence slumped more than economists forecast this month and German retail sales fell the most in more than four years in August. Commerzbank AG said today that the region “looks set to slip into a recession.”
  • Spanish State Fund to Take Over Three More Lenders, Spending $10.2 Billion. The Bank of Spain took over three more lenders after they failed to meet a deadline for new minimum capital requirements set by the government. Spain’s bank rescue fund, known as FROB, will administer banks run by CaixaCatalunya, Novacaixagalicia and Unnim, the regulator said in a statement today. The cost of recapitalizing the three lenders and Caja de Ahorros del Mediterraneo, a failed savings bank seized in July, will be 7.55 billion euros ($10.2 billion), the Bank of Spain said. “I suspect that more recapitalizations will be needed,” Gonzalo Gomez Bengoechea, an economist at the IESE business school in Madrid. “The exposure to sovereign debt may be low, but the real-estate sector increases the uncertainty.”
  • Business Activity in U.S. Unexpectedly Accelerates in Sign of Confidence. Business activity in the U.S. unexpectedly accelerated in September, a sign executives are betting the economy will weather recent slumps in stocks and confidence. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 60.4 this month from 56.5 in August. A level of 50 is the dividing line between expansion and contraction. Economists forecast the gauge would drop to 55, according to the median estimate in a Bloomberg News survey.
  • Buffett: BofA(BAC) Needs 'Much Longer' to Clean Up. Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) invested $5 billion in Bank of America Corp. (BAC), said that problems at the biggest U.S. lender by assets will take “much longer” to clean up. “It won’t take six months or a year; it will take much longer than that even. But the underlying business is doing fine.”
  • Ingersoll Rand(IR) Tumbles After Cutting Sales, Profit Forecasts. Ingersoll Rand Plc. plunged the most in more than two decades after cutting its full-year sales and profit forecasts amid slowing demand for climate control and residential-security businesses. Shares of the maker of security systems and Trane air conditioners dropped $5.53 to $26.43 at 10:14 a.m. in New York Stock Exchange composite trading, after earlier falling as much as 18 percent, the biggest intraday decline since Oct. 1987. The shares had dropped 32 percent this year before today. Consumer-related businesses such as residential heating and air conditioning, golf and residential security were “significantly affected” in the third quarter, accounting for the lower sales volume, the company said in a statement today. Commercial-security sales were also slower than expected.
  • GE(GE) Planning to Build Wind-Turbine Production Facility in Brazil. General Electric Co. (GE), whose equipment generates more than a quarter of the world’s power, will build a 45 million-real ($24.2 million) wind-turbine factory in Brazil’s northeastern state of Bahia, Valor Economico reported. The facility will be able produce 200 turbines a year when it goes into operation in the middle of 2013 and may be expanded, Marcelo Soares, president of the company’s Latin American energy unit, said in an article in the Sao Paulo-based newspaper today.
  • Corn Plunges to Three-Month Low on Signs of Slowing Demand; Soybeans Drop. Corn plunged, heading for a record monthly decline, after a government report showed larger U.S. inventories than forecast, signaling reduced demand for the grain used in animal feed and ethanol. Soybeans also declined. Consumption of corn in the U.S., the world’s largest grower and exporter, fell to 2.54 billion bushels in the three months ended Aug. 31 from 2.6 billion a year earlier, the Department of Agriculture said today in a report. Feed use dropped 7.9 percent to 456 million bushels. Prices are down 23 percent since the end of August, heading for the biggest monthly decline on record. “It’s a big negative surprise,” said Gregg Hunt, a market analyst and broker at Archer Financial Services Inc. in Chicago. “The drop in consumption implies that livestock feeders were using other feed sources, including ethanol by-products, and also says that last year’s crop was larger than the USDA estimated.” Corn futures for December delivery plunged 36.75 cents, or 5.8 percent, to $5.9575 a bushel at 10:28 a.m. on the Chicago Board of Trade, after dropping as much as the 40-cent exchange limit to $5.925, the lowest since July 1.
  • Crude Oil Heads for Its Biggest Quarterly Decline in New York Since 2008. Oil fell, heading for its largest quarterly decline in New York since the 2008 financial crisis, as signs of slowing growth in China, the U.S. and Germany heightened concerns that fuel demand will suffer. West Texas Intermediate futures have fallen 15 percent this quarter, the biggest drop since the three months ended Dec. 31, 2008. Chinese manufacturing fell for a third month, according to data from HSBC Holdings Plc, while Germany’s Federal Statistics office said retail sales declined the most in more than four months in August. U.S. consumer spending slowed in August as incomes declined, the Commerce Department said today. WTI’s discount to Brent oil narrowed for a sixth day, the longest streak since March 2010. “There is a risk of slowdown in Chinese demand,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, who forecasts Brent prices at $100 in the next quarter. “The risks to the forecast in the fourth quarter and for 2012 as a whole are to the downside.” Crude for November delivery on the New York Mercantile Exchange fell as much as $1.59, or 1.9 percent, to $80.55 a barrel and was at $80.64 at 1:52 p.m. London time. WTI is down 9.2 percent this month. Brent oil for November settlement fell $1.57 to $102.38 a barrel on the ICE Futures Europe exchange in London. Prices are down 9 percent this quarter.
  • China Stocks Sink to April 2009 Low as Quarterly Losses Mount on Slowdown. China’s stocks fell, sending the benchmark index to its lowest close since April 2009, on signs growth is slowing as the government maintains measures to curb inflation and overseas demand for exports falters.“Next quarter may see a lot of companies revising down their earnings forecasts amid the slowdown in the economy,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “We are pretty cautious ahead of the weeklong holiday because the risk of Europe’s debt crisis is still there.” The Shanghai Composite sank 15 percent this quarter, the biggest loss since the three months to June 2010, amid concern Greece will default on its debt.
  • China's Manufacturing Contracts for Third Month on Orders, Export Demand. A gauge of Chinese manufacturing shrank for a third month, the longest contraction since 2009, as measures of new orders and export demand declined. The reading of 49.9 for the September purchasing managers’ index, released by HSBC Holdings Plc and Markit Economics today, was unchanged from August and compared with a preliminary 49.4 figure published last week. The gauge was below 50, the level that separates expansion from contraction, for eight months through March 2009.
  • Google(GOOG) Joins Apple(AAPL) in Push for Tax Holiday. As a coalition led by Apple Inc. (AAPL), Google Inc. (GOOG), and Cisco Systems Inc. (CSCO) presses for a tax holiday on more than $1 trillion in offshore profits, it is turning to a well-positioned lobbyist: Jeffrey Forbes, once chief of staff to Max Baucus, chairman of the tax-writing Senate Finance Committee.
  • Fed's Twist Will Fail to Boost Hiring: Poll. Global investors say Federal Reserve Chairman Ben S. Bernanke’s bond-swap program, known as Operation Twist, will fail to reduce unemployment as the world’s largest economy slows. Seventy-eight percent of respondents say the Fed’s plan to replace $400 billion of short-term debt with longer-term Treasuries won’t create jobs for the nation’s 14 million unemployed, according to the quarterly Bloomberg Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. “There’s probably nothing monetary policy can do except keep the psychology of the market positive,” poll respondent Jonathan Sadowsky, chief investment officer of Vaca Creek Asset Management in San Francisco, said in a follow-up interview.
  • Obama Standing With Global Investors Plummets to 57% Unfavorable. Global investors’ confidence in President Barack Obama has plummeted over the past four months, with almost three-quarters of them now viewing his policies as a drag on the U.S. business climate. Perceptions of European leaders such as German Chancellor Angela Merkel and French President Nicolas Sarkozy also have turned sharply negative after months of tumult in global financial markets, according to a Bloomberg Global Poll. The quarterly poll, conducted Sept. 26, covered 1,031 investors, traders and analysts who are Bloomberg subscribers. Obama’s overall standing with investors has reversed, with 57 percent now viewing the U.S. president unfavorably compared with 55 percent who saw him favorably in the last poll, in May. “He does not understand the urgency of the debt crisis and its global ripple effect,” poll respondent Scott Troxel, 46, head of the Scandinavian desk at Tradition Group in Lausanne, Switzerland, said in an e-mail. “President Obama must get in front of the problems by taking real risk in achieving a bipartisan solution to long-term debt reduction, credible short- term job stimulus, and tax reform that is more clear and thoughtful than a tax on billionaires.”
Wall Street Journal:
  • Top Al Qaeda Figure Killed. Al Qaeda figure Anwar al-Awlaki, one of the most-wanted terrorists on a U.S. target list, has been killed in a CIA drone strike in Yemen, marking another significant blow to the global terrorist group after the assassination of Osama bin Laden earlier this year.
  • Greek Crisis Reveals EU's Tragic Flaw. Leaders May Have the Will to Avoid Country's Exit From Euro, but Not the Way.
  • Shift in Sentiment Toward China's Internet Darlings. A series of alleged frauds at little-known Chinese companies listed in the U.S. has triggered a stunning shift in sentiment among investors, who are now dumping even the darlings of the Chinese Internet as they focus on hidden business risks.
  • EU Welfare Rules May Cost UK GBP2 Bln Annually - UK Minister. The European Commission's move to force the U.K. to change its rules on European Union citizens' eligibility to welfare benefits could cost the country an extra GBP2 billion a year and is further evidence of the EU's push to extend its powers over the U.K., a minister said Friday. "This kind of land grab from the EU has the potential to cause mayhem to nation states, and we will fight it," Work and Pensions Secretary Iain Duncan Smith wrote
  • Fed's Fisher: Current Monetary Policy Ineffective in Climate of Uncertainty.
  • JPMorgan(JPM), BofA(BAC) Sued Over Mortgage Debt Losses. JPMorgan Chase and Bank of America were hit with new lawsuits by investors seeking to recover losses on $4.5 billion of soured mortgage debt, expanding the litigation targeting the two largest U.S. banks.
  • Norway Oil Find May Be Its Third Biggest Ever. An oil discovery in the North Sea could be the third-biggest find ever made off Norway, oil minnow Lundin Petroleum said after giving new estimates on Friday, breathing life into a mature oil region largely written off by the majors.
Business Insider
Zero Hedge:
LA Times:
  • Federal Regulators Bent Rules to Let Banks Repay TARP Money Early. Bank of America, Wells Fargo and PNC Financial's quick exits from the bailout program raise questions about whether government officials put repayment ahead of ensuring that the banks were financially strong enough to survive on their own. The banks pushed for the repayment requirements to be eased in part because they wanted to avoid tough executive compensation restrictions attached to the Troubled Asset Relief Program, according to an audit released Thursday by the special inspector general monitoring the bailout fund.
Street Insider:
  • Interview - Starbucks(SBUX) CEO Saw No Summer Weakness. Starbucks Corp's business is "still very strong" despite months of economic turmoil that has weakened sales at other major restaurant chains, Chief Executive Howard Schultz told Reuters on Thursday. "Starbucks is having its best year and our business remains strong," he said in a telephone interview.
  • Amazon(AMZN) Tablet Costs $209.63 to Make, IHS Estimates. Inc's new tablet computer costs $209.63 to make, IHS iSuppli estimated on Friday, highlighting how the e-commerce giant is taking a financial hit upfront to get the device into as many hands as possible. Amazon's billionaire Chief Executive Jeff Bezos unveiled the Kindle Fire at a lower-than-expected $199 price on Wednesday.
  • Intel Capital: India Tech Start-Up Values Near Bubble. Intel Capital, the investment arm of Intel Corp , the world's biggest chipmaker, believes valuations of early-stage technology companies in India have reached a "near-bubble" stage, as too much capital chases too few quality opportunities. "It's crazy. I am not drawing parallels, but it feels like '99 in the U.S.," said Sudheer Kumar Kuppam, managing director for Asia Pacific at Intel Capital. "This is not a good sign. Most of the time, we evaluate companies and we have to leave it at that stage as we feel valuations were too high," Kuppam told Reuters during a visit to India's financial capital.
Financial Times:
  • Greeks Told Protests Could Derail Bailout. The head of Greece’s statistical agency has lashed out against a wildcat strike by employees, warning the protest could derail the approval by international lenders of the next tranche of the country’s bail-out loan. Andreas Georgiou, chairman of Elstat (Hellenic Statistical Agency), told the Financial Times on Friday that he could not provide the figures needed to finalise the 2012 budget because of the walk-out.
  • A Guide to China CDS. (graph)
  • Nein, Nein, Nein, and the death of EU Fiscal Union. Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes". This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events. The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer. Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go "this far, and no further". There can be no question of beefing up the EFSF to €2 trillion or any other sum, whether by leverage or other forms of structured trickery. "The financial markets are beginning to ask whether Germans can afford all this help. We must not risk the creditworthiness of the German state," he said.
  • China's Facade Disguises Economic Troubles. In Shenzhen shopping mall there are no traces of the global financial crisis, just luxury goods as far as the eye can see. Never mind a two-speed world economy, China is a two-speed country economy all on its own. The woman smilingly showing me round Mixc seems oblivious to the warnings of a Chinese property bubble, the wobbling Hang Seng index and the fact that according to Asia economist Jim Walker, Chinese growth will slow to 0pc next year. "In my experience there is no such thing as a soft landing for an economy," said Mr Walker. "Chinese growth will slow significantly to between 0 and 3pc next year." Mr Walker, founder of economic research company Asianomics, blamed the problems on the Chinese banking sector and the drop in Asian Purchasing Managing Indices (PMI) – the amount that Asian companies are spending.
  • Banks Putting Eurozone Rescue at Risk by Refusing to Increase Capital Buffers.
Jornal de Negocios:
  • Portugal will find it "extremely difficult" to meet its objectives if there is a recession again, Moritz Kraemer, S&P's head of European sovereign ratings, said in an interview.

Bear Radar

Style Underperformer:

  • Mid-Cap Value (-1.44%)
Sector Underperformers:
  • 1) Construction -4.22% 2) Agriculture -3.43% 3) I-Banks -3.20%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) IR 2) VMC 3) XHB 4) UBS 5) FMCN
Stocks With Most Negative News Mentions:
  • 1) ALTR 2) SOHU 3) GR 4) BHI 5) IR

Bull Radar

Style Outperformer:

  • Large-Cap Value (-.73%)
Sector Outperformers:
  • 1) Gold & Silver +2.29% 2) Restaurants +.99% 3) Biotech +.12%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) GCI 2) FDO 3) SFD 4) DFS 5) HBC
Stocks With Most Positive News Mentions:
  • 1) MRO 2) CEVA 3) ATI 4) EIX 5) V

Thursday, September 29, 2011

Friday Watch

Evening Headlines

  • Europe Prepares Next Crisis Steps After Merkel Rescue-Fund Parliament Win. European leaders are turning their focus to the next steps to stem the region’s debt crisis after German lawmakers approved an expansion of the euro-area rescue fund’s firepower. With the European Commission now expecting the overhauled 440 billion-euro ($599 billion) European Financial Stability Facility in place by mid-October, euro finance chiefs will next week discuss accelerating enactment of a permanent rescue fund that provides more capital and a tool for managing defaults. “I’m not convinced that this bailout package is going to be remotely enough for the euro zone itself,” Wilbur Ross, the billionaire chairman of private-equity firm WL Ross & Co., said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “I think it should start with a ‘T,’ not a ‘B,’” he said, referring to trillions instead of billions. European officials are also studying measures that include leveraging the EFSF, said Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London. There may be ‘‘an orderly Greek default later this year, with a haircut on Greek debt, an immediate recapitalization of Greek banks, European guarantees for restructured Greek debt and conditional fiscal support’’ for Greece, he said. With concern growing that Greece will be unable to avoid default, Greek Prime Minister George Papandreou will meet French President Nicolas Sarkozy today in Paris after seeing European Union President Herman Van Rompuy in Warsaw.
  • Bond Issuance Plunges on 'Armageddon' Scenarios: Credit Markets. Corporate bond offerings worldwide plunged in the third quarter to the lowest level since Lehman Brothers Holdings Inc.'s 2008 failure as Europe's sovereign debt crisis caused investors to shun all but the safest securities. Hewlett-Packard Co., the world's largest maker of personal computers, and Santa Clara, California-based chipmaker Intel Corp. led borrowers issuing $543.2 billion of bonds in the past three months, according to data compiled by Bloomberg. Issuance fell 41 percent from the second quarter and 38 percent from a year ago as offerings by financial firms and junk-rated companies largely evaporated.
  • New Zealand Loses AAA Ratings, Yields Jump. New Zealand lost its AAA grades on local-currency debt at Fitch Ratings and Standard & Poor’s, which both cited concerns about the nation’s fiscal burden. Benchmark government yields rose the most this year. The outlook is stable after the long-term local-currency rating was reduced one level to AA+ and the foreign-currency rating was cut to AA from AA+, S&P said in a statement, matching actions announced yesterday by Fitch. New Zealand joins the U.S. to Italy among nations whose sovereign credit ratings have been cut this year, as governments’ struggles to cope with their debt burdens roil financial markets. Fitch’s downgrade may raise funding costs, adding to the case for Reserve Bank Governor Alan Bollard to keep interest rates at a record 2.5 percent low. Bond yields rose amid concern some overseas investors will sell their New Zealand holdings after the downgrades. “If funding pressures do intensify, this is one key factor, through a further tightening in financial conditions, that would delay any interest-rate hikes from the RBNZ,” Philip Borkin, an economist at Goldman Sachs & Partners New Zealand Ltd., said in a note to clients after the downgrade.
  • China Stocks Fall in U.S. Trading on Probe Comments from SEC's Khuzami. Chinese Internet stocks tumbled in New York trading after a top U.S. securities regulator said the Department of Justice is reviewing allegations of accounting fraud at firms operating out of the Asian nation. Sina Corp., owner of the Twitter-like Weibo service in China, fell 9.7 percent and Baidu Inc., operator of China’s most popular online search engine, dropped 9.2 percent after Securities and Exchange Commission Enforcement Director Robert Khuzami made the comments in an interview with Reuters that was published today. “There are parts of the Justice Department that are actively engaged in this area,” Khuzami told Reuters in comments about allegations of possible fraud that were confirmed by John Nester, a spokesman for the SEC. Laura Sweeney, a Justice Department spokeswoman, declined to comment on whether criminal authorities are involved.
  • Copper Rout Outpaces Analysts Focused on Production Shortages: Commodities. The biggest rout in copper since the global recession drove analysts to cut their price forecasts by 16 percent in a week as mounting concern about growth eroded expectations for supply shortages. The metal may drop as much as 10 percent to $6,500 a metric ton by Dec. 31, according to the median in a Bloomberg survey of 16 analysts and traders. Their estimate was $7,773 a week ago. Speculators in U.S. futures are making the biggest wager on declining prices in more than two years, U.S. government data show. Barclays Capital cut its forecast for the shortfall in global supplies four times since April and Deutsche Bank AG is anticipating a surplus as early as next year. Commodities tumbled into a bear market this month, dropping 21 percent since April, on concern that slowing growth will curb demand for raw materials.
  • FBI Probing Solyndra for Possible Fraud. The FBI is investigating Solyndra LLC for possible accounting fraud and the accuracy of financial representations made to the government, according to an agency official. The FBI is examining possible misrepresentations in financial statements, according to the FBI official, who requested anonymity because the investigation is continuing. Solyndra, which made cylindrical-shaped solar panels, filed for bankruptcy protection on Sept. 6 and fired about 1,100 workers with little notice, about two years after winning a $535 million U.S. loan guarantee from the Energy Department.
  • Micron(MU) Falls After Reporting Loss as PC Slump Cut Prices. Micron Technology Inc., the largest U.S. maker of computer-memory chips, fell in extended trading after reporting a fiscal fourth-quarter loss on weak demand for personal computers. The net loss was $135 million, or 14 cents a share, compared with a profit of $342 million, or 32 cents, a year earlier, the Boise, Idaho-based company said in a statement today. Revenue in the period ended Sept. 1 fell 14 percent to $2.14 billion. Analysts surveyed by Bloomberg on average estimated profit of 2 cents on sales of $2.11 billion. The price of dynamic random access memory, or DRAM, which provides the main memory in PCs, dropped as supply increased and demand from makers of laptops and desktop PCs remained sluggish. “It looks pretty bad,” said Daniel Berenbaum, an analyst at MKM Partners LLC. “It used to be if you got supply right, you were fine. Now there seems to be something wrong with demand.” Micron shares declined as much as 4.9 percent in extended trading after slipping 4 percent to close at $5.87 on the Nasdaq Stock Market.
  • IBM(IBM) Exceeds Microsoft(MSFT) in Market Capitalization for First Time Since 1996.
Wall Street Journal:
  • Banks Plan New Fees for Using Debit Cards. The nation's beleaguered banking industry, which has been raising fees and doing away with free services, has a new target: debit-card users. Bank of America Corp. is laying plans to charge millions of customers a $5 monthly fee to use their debit cards, and other big banks are expected to follow suit. The industry says it needs the fees to recoup revenue it will lose because of new government regulations that cap what they can charge merchants for debit-card transactions.
  • Friendly's Preparing Bankruptcy Filing. The Friendly's restaurant chain is preparing for a possible Chapter 11 bankruptcy filing and potential sale, said people familiar with the matter. Friendly Ice Cream Corp., which employs roughly 10,000 people and operates more than 500 restaurants known for sundaes and hamburgers, could seek protection from creditors as soon as next week, the people said. The Wilbraham, Mass.-based company would then try to sell itself through a bankruptcy auction, the people said.
  • Index Deal Would Bring S&P and DJIA Together. McGraw-Hill Cos.(MHP) is in advanced talks to combine its S&P Indices business with CME Group Inc.'s(CME) Dow Jones Indexes to create a joint venture that would house globally recognized stock-market indicators such as the Standard & Poor's 500-stock index and the Dow Jones Industrial Average, people familiar with the matter said.
  • Kabul to Drop Peace Effort With Pakistan and U.S. Afghanistan plans to suspend an effort to work with Pakistan and the U.S. to bring the Taliban to the negotiating table, Afghan officials said, taking a tougher line with Pakistan after last week's assassination of Kabul's top peace negotiator. Senior U.S., Pakistani and Afghan officials had been set to meet in Kabul on Oct. 8 to discuss ways to get insurgents into peace talks and end the 10-year-old conflict. Afghanistan has now decided to cancel the meeting, deputy national-security adviser Shaida Mohammad Abdali said on Thursday.
  • At SEC, Strategy Changes Course. Securities and Exchange Commission officials are trying to make it easier on themselves to hold more individuals responsible for wrongdoing during the financial crisis. In a major shift from the agency's traditional enforcement strategy, the SEC could file more civil cases in which defendants are accused of negligence only, rather than harder-to-prove charges of intentional wrongdoing or recklessness, according to SEC officials.
  • Flat Is the New Fair by Stephen Moore. Is President Obama paving the way for GOP tax reform?
Dow Jones:
  • NY Fed: Dollar Swap Line Borrowings Total $500 Million In 9/28 Week. Outstanding borrowings at the Federal Reserve foreign exchange swap facility totalled $500 million in the latest week. The Federal Reserve Bank of New York reported Thursday that in the week ended on Wednesday, the borrowing had been done by the European Central Bank, for a term of one week at a rate of 1.07%. The ECB had borrowed $575 million last week. The Federal Reserve operates swap arrangements with the Bank of Canada, Bank of England, Bank of Japan, the European Central Bank and the Swiss National Bank to ensure ample levels of dollar liquidity in the global financial system. Since the swap arrangements were relaunched in May 2010, they have been little-used by participating banks, compared to the heavy usage of the facility during the worst days of the financial crisis. In the current climate of intense worry about the state of global finance, investors have turned a wary eye toward the Fed's currency swap facility, fearing a spike in usage could be a sign of growing financial troubles.
  • China Hard-Landing Fears Hit High-End Retailers. Shares of several high-end retail goods companies slumped Thursday in the U.S. and Europe on worries a worsening global economic climate could weaken Chinese appetite for premium branded products. The tumble came amid growing fears of a hard economic landing in China, which has emerged as a key driver of the world’s economy in the wake of the global financial crisis. “Fears of a hard landing in China have once again intensified. While our base case remains a soft landing led mainly by an investment slowdown, we see increasing downside risk from the situation in Europe and at home,” Barclays Capital economists led by Yiping Huang wrote in a report earlier this week.
Business Insider:
Zero Hedge:
  • DOE Pushing On With $5 Billion In Solar Energy Loans. The U.S. Department of Energy said it plans to push ahead with as much as $5.3 billion in potential additional alternative energy loans by Friday, despite Republican complaints the money is going out too quickly to untested firms.
  • Brazil's $12 Billion iPad Deal Is In Trouble. A much-hyped $12 billion plan for Taiwanese manufacturer Foxconn to produce iPads in Brazil is "in doubt" due to stagnant negotiations over tax breaks and Brazil's own deep structural problems such as a lack of skilled labor, government sources tell Reuters.
NY Times:
  • Even if Europe Averts Crisis, Growth May Lag for Years. It has happened time and again in recent months as Europe’s debt crisis has played out. Stocks stage a strong comeback on expectations that a solution has been found. Then they quickly resume their decline as hopes dissipate, leaving investors puzzled and frazzled. What is going on? The problem, say close watchers of both the subprime financial crisis in 2008 and the European government debt crisis today, is that many investors think there is a quick and easy fix, if only government officials can agree and act decisively. In reality, one might not exist.
LA Times:
Boston Herald:
  • Cursive Handwriting No Longer a Focus in Many Elementary Schools. Vicki Zurkowski wonders if today’s cursive handwriting will be tomorrow’s hieroglyphics — an ancient form of writing decipherable by only a few experts in a specialized field. The Elmhurst, Ill., mother was disturbed to learn that her children’s school district will spend less time teaching the flowing loops of cursive in order to squeeze more 21st-century lessons, such as keyboarding, into the classroom day. "We are losing an art," said Zurkowski, who wonders how her two youngest children will develop a unique signature or read notes written on greeting cards. "Maybe it’s something I will have to teach my kids myself."
  • Hedge Fund Blow-Up Rumors Focus On This Momentum Fund. With the massive downdraft in momentum stocks today there has been speculation of a hedge fund blow-up. Those rumors now appear to be centered on John Thaler's JAT Capital. While we cannot verity if these rumors are true, the fund owns many of today's worst performers.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
  • U.S. Senate Banking Panel to Vote on CFPB Nominee. The Senate Banking Committee is expected to vote next week on the nomination of Richard Cordray to head the new Consumer Financial Protection Bureau, according to a Democratic aide. The vote will likely occur on Oct. 6, but the plan has yet to be finalized.
  • China Property Tax Could Go Nationwide - Chongqing Mayor. A pilot programme to levy property taxes, the first of its kind in China, is helping cool price rises in Chongqing and will eventually be extended to the rest of the country, the mayor of the country's biggest municipality told Reuters. "I'm sure that property taxes play a long-term role in controlling property prices," said Huang Qifan in an interview at his offices in Chongqing late on Wednesday, adding that the city's own tax, launched in a trial earlier this year, has already delivered results. "We're trying it out in this first year, and I'm sure that next year or the year after it will be expanded within our country," Huang said. China launched a property tax on large, expensive homes in Chongqing and Shanghai in January on a trial basis as part of efforts to rein in speculation and housing inflation. Policy makers in the world's second-biggest economy have been struggling to pull down stubbornly high inflation rates without damaging the fast-growing economy. Containing rising home prices is a key part of that effort. Already, Chongqing has expanded its pilot property tax programme, which originally applied only to property transactions completed after its launch in January, local media reported earlier this week.
  • US Equity Funds Post $5.9 Billion in Outflows.
  • Japan Sept. Manufacturing PMI Shrinks, First in 5 Months. Japanese manufacturing activity contracted in September for the first time in five months as a strong yen hurt exports and domestic orders shrank due to weak domestic demand, a survey showed on Friday. The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 49.3 in September from 51.9 in August. The index fell below the 50 threshold that separates contraction from expansion for the first time since April, which was one month after a devastating earthquake in March.
  • US Watchdog Finds TARP Paid Questionable Legal Fees. The U.S. government's bank bailout program paid more than $9 million in legal fees to law firms that submitted questionable bills with little or no details on services provided, the agency's watchdog said in a report released on Thursday. The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) said auditors questioned $8.1 million of a sampling of $9.1 million in bills from four law firms paid by Treasury's Office of Financial Stability (OFS).
Financial Times:
  • Debt Crisis Efforts Carry Boom-Era Echoes. Whisper it softly, but there’s a touch of boom-era financial wizardry in the debate over how to resolve the eurozone debt crisis. Some market participants liken the monetary union’s €440bn bail-out fund, the European financial stability facility, to a collateralised debt obligation, a form of bundled and structured debt made famous by its toxic connotations during the subprime crisis. Where mortgage risk used to be packaged and repackaged to form esoteric, triple A-rated products, the EFSF relies on guarantees from euro-area members, some heavily indebted, to issue its own highly rated bonds. One idea, based on a suggestion from Tim Geithner, US Treasury secretary, to leverage the rescue fund also carries echoes of the pre-crisis techniques used by banks to magnify the effect of their assets.
  • ICAP Prepared to Quit London Over Tax. Icap, the world’s biggest interdealer broker by trade volumes, would move its main operations away from London “extremely rapidly” if faced with a European financial transactions tax, its chief executive has warned. Michael Spencer told an analysts’ conference call on Thursday that “the wholesale financial market will evaporate from Europe” if the levy were introduced.
  • UK Faces Defeat to EU on Key Derivatives Regulation. The UK is facing defeat over a critical piece of EU financial regulation, forcing it to cede control over the shape of key markets in the City, home to more than three-quarters of Europe’s derivatives trading.
  • Germany's Vote Simply Kicks the Euro Can Down the Road to Cannes. Unfortunately for the Bundestag members who voted in large numbers in favour of the greater bail-out powers for the EFSF on Thursday, the world has moved on since July 21. If they thought it was difficult to get this far, all they've done is ratify a solution to a problem that has changed materially in the intervening period.
  • China Ruffles Europe's Feathers.
  • German Bailout Vote Is 'Too Little, Too Late'. Germany's Bundestag has voted overwhelmingly to boost the scope of the EU's rescue fund but implicitly capped its firepower at €440bn, leaving it no clearer whether Europe has the means to halt debt contagion to Italy and Spain.
Rheinische Post:
  • Germany's Federal Labor Agency's IAB research unit has cut its German 2012 gross domestic product forecast to 1% from 1.8%.

Securities Times:
  • A rising yuan won't solve U.S problems, Zhang Monan, a researcher with the State Information Center, wrote in a commentary today. Yuan appreciation over the short-term has put China's economy in a difficult predicament, he said.
South China Morning Post:
  • Chinese Firm Banned for Fraud by World Bank. A subsidiary of China Metallurgical Group Corporation (MCC), a state-owned construction, resources and property conglomerate, has been banned by the World Bank from participating in its projects for three years for "fraudulent misconduct" relating to an urban transport project in Bangladesh.
Evening Recommendations
Piper Jaffray:
  • Rated (LRCX) Overweight, target $46.
  • Rated (MU) Overweight, target $8.
  • Rated (KLAC) Overweight, target $50
Night Trading
  • Asian equity indices are -1.0% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 235.0 -4.0 basis points.
  • Asia Pacific Sovereign CDS Index 166.0 +8.5 basis points.
  • FTSE-100 futures -.26%.
  • S&P 500 futures -.43%.
  • NASDAQ 100 futures -.18%.
Morning Preview Links

Earnings of Note
  • None of note
Economic Releases
8:30 am EST
  • Personal Income for August is estimated to rise +.1% versus a +3% gain in July.
  • Personal Spending for August is estimated to rise +.2% versus a +.8% gain in July.
  • The PCE Core for August is estimated to rise +.2% versus a +.2% gain in July.
9:45 am EST
  • Chicago Purchasing Manager for September is estimated to fall to 55.0 versus 56.5 in August.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for September is estimated at 57.8 versus a prior estimate of 57.8.
Upcoming Splits
  • (EMN) 2-for-1
Other Potential Market Movers
  • The Fed's Bullard speaking, China PMI and the NAPM-Milwaukee for September could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Rising Into Final Hour on Euro Bounce, Quarter-End Short-Covering/Window-Dressing, Less Financial Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Slightly Above Average
  • Market Leading Stocks: Substantially Underperforming
Equity Investor Angst:
  • VIX 38.81 -5.53%
  • ISE Sentiment Index 93.0 +75.47%
  • Total Put/Call 1.19 -15.60%
  • NYSE Arms .83 -82.47%
Credit Investor Angst:
  • North American Investment Grade CDS Index 139.94 +1.57%
  • European Financial Sector CDS Index 247.67 +1.97%
  • Western Europe Sovereign Debt CDS Index 340.0 +.09%
  • Emerging Market CDS Index 349.86 -.83%
  • 2-Year Swap Spread 30.0 unch.
  • TED Spread 36.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% +1 bp
  • Yield Curve 170.0 -5 bps
  • China Import Iron Ore Spot $171.50/Metric Tonne -.64%
  • Citi US Economic Surprise Index -36.50 +5.5 points
  • 10-Year TIPS Spread 1.83 -4 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +19 open in Japan
  • DAX Futures: Indicating +13 open in Germany
  • Slightly Higher: On gains in my Biotech/Medical longs and Emerging Markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is just mildly bullish, as the S&P 500 gives up some morning gains on rising Eurozone debt angst, rising tech sector pessimism, rising food/energy prices, global growth worries and profit-taking. On the positive side, Bank, I-Bank, Drug, Insurance, Homebuilding, REIT and Road & Rail shares are rising on the day. (XLF) has outperformed throughout the day. Major European stock indices rose 1-2% today. On the negative side, Coal, Alt Energy, Oil Service, Steel, Internet, Computer, Semi, Disk Drive, Networking, Biotech, HMO, Retail, Restaurant, Gaming and Education shares are under significant pressure, falling more than 2.0%. Growth stocks are substantially underperforming value shares. The tech sectors has also underperformed throughout the day. Lumber is falling -1.3%, the UBS-Bloomberg Ag Spot Index is rising +2.0%, oil is gaining +1.8%, gold is rising +.6% and copper is dropping -.9%. Rice is still close to its multi-year high, rising +27.0% in about 12 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.46/gallon. It is up .32/gallon in about 7 months. The Germany sovereign cds is gaining +1.76% to 105.83 bps, the China sovereign cds is gaining +4.84% to 173.76 bps, the Japan sovereign cds is gaining +2.3% to 144.0 bps and the Brazil sovereign cds is rising +2.24% to 186.34 bps. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The 3-Month Euro Basis Swap fell -4.44 bps to -104.67 bps. The Asia-Pacific Sovereign CDS Index is surging another +5.5% today to a new record 166.25 bps. The China sovereign cds is now at the highest level since March 2009. The China Development Bank Corp cds is rising another +2.17% to 340.55 bps, which is also the highest since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is making another new multi-year high, rising +22.0 bps to 840.0 bps. The Shanghai Composite, which continues to trade very poorly, fell another -1.1% overnight, leaving it down -15.78% ytd at the lowest level since July 2010. Various global credit angst gauges continue to trend higher, which remains a large negative. Many growth stock leaders are breaking down on volume today. Globally, market action indicates intensifying fears of recession, however according to a recent poll 79% of money managers don't see a double-dip, which is a negative. The bears inability to capitalize on this afternoon's swoon, likely means more short-term upside into quarter's end. I expect US stocks to trade mixed-to-higher into the close from current levels on quarter-end short-covering/window-dressing, less financial sector pessimism, bargain-hunting and a bounce in the euro currency.

Today's Headlines

  • European Banks Chided for Lack of Transparency. The head of Europe’s markets regulator warned banks to be consistent in their valuations of sovereign debt amid concern some lenders have failed to record sufficient losses on Greek bonds. Steven Maijoor, chairman of the European Securities and Markets Authority, likened the lack of transparency about banks’ individual holdings of government debt to the subprime mortgages that triggered the credit crisis. “Lack of transparency regarding exposures to subprime mortgages created a situation of uncertainty about the financial positions of banks,” he said in a speech in Vienna today, according to a transcript released by ESMA on its website. Recently, “a lack of transparency from banks on their exposures to sovereign debt and related instruments are generating new suspicions about the conditions of individual banks and this requires similar answers in terms of transparency.”
  • Norway to Cut Bank Support as Europe Girds for Deeper Crisis. Norway’s central bank will force lenders to wean themselves off its deposit facility in an effort to spur interbank lending even as Europe’s debt crisis threatens to trigger a region-wide liquidity squeeze. “Norges Bank wants the banks to use each other more for placing their money,” Kari Due-Andresen, an analyst at Svenska Handelsbanken AB in Oslo and former central bank economist, said in an interview. “But what the banks say is that at the moment the situation is so insecure and they are hoarding their own cash, so the new measures will just make things worse.”
  • Hong Kong Stocks Head for Biggest Monthly Drop in Three Years. Hong Kong stocks dropped, dragging the Hang Seng Index toward its biggest monthly decline in almost three years, amid lingering concerns over the global economy and Europe's debt crisis. Industrial & Commercial Bank of China Ltd., the nation's biggest lender by market value, sank 3.8 percent today after rallying as much as 9.9 percent yesterday. Hutchison Whampoa Ltd. declined after its mobile phone unit said an auction for signal spectrum in the U.K. faces delay. Active Group Holdings Ltd., a maker of men's shoes, fell as much as 6.7 percent in its Hong Kong listing debut today before closing 0.8 percent lower. The Hang Seng Index lost 0.7 percent to 18,011.06 as of the close in Hong Kong, dragging the measure toward a 12 percent decline this month, its biggest monthly drop since Oct. 2008. The measure is on course for a 20 percent loss this quarter, its steepest decline since the period ended Dec. 2008.
  • U.S. Economy Grew at a Revised 1.3% Pace Last Quarter.
  • Jobless Claims in U.S. Drop More Than Forecast. Claims for U.S. unemployment benefits fell more than forecast last week as an atypical calendar alignment made it more difficult for the government to adjust the data for seasonal changes.
  • BofA(BAC) to Add Monthly Fee to Some Debit Customers. Bank of America Corp., the biggest U.S. lender by assets, plans to announce a $5 monthly charge for some debit-card users to recoup revenue lost after new federal rules capped so-called swipe fees. Customers with lower-tiered accounts, including the firm’s online-banking option, may start getting assessed the fee for debit-card purchases in January, said Anne Pace, a Bank of America spokeswoman.
  • U.S. Decries Salaries, Staffing in New UN Budget. The Obama administration told the United Nations that too few of its 10,307 workers are being cut and average salaries, currently $119,000 a year, have risen “dramatically.” The U.S. ambassador for UN management and reform, Joseph M. Torsella, said today that the proposed $5.2 billion UN budget for the next two years would scrap only 44 jobs, a 0.4 percent reduction. After an “onslaught” of add-ons, the 2012-13 budget would rise more than 2 percent to $5.5 billion, he said. “That is not a break from ‘business as usual’ but a continuation of it,” Torsella said in a speech in New York to the UN’s administrative and budgetary committee. “How does management intend to bring these numbers and costs back in line?” Torsella’s attack on UN salaries and workforce size follows legislation introduced by U.S. House Republicans on Aug. 30 that, if passed into law, would have the U.S. withhold a percentage of its contributions until at least 80 percent of the UN budget is voluntary. Calling personnel the “largest and most important driver of long-term costs,” Torsella said those expenses increased to $2.4 billion in the 2010-11 budget from $1.4 billion a decade earlier. The U.S. pays 22 percent of the UN’s regular operating budget and is assessed 27 percent of the peacekeeping budget. U.S. payments totaled $3.35 billion in 2010, of which $2.67 billion was dedicated to the 16 peacekeeping operations worldwide, from South Sudan to Haiti.
  • Plosser: Easing Moves May Be Undermining Fed. Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank may be undermining its own credibility by pushing forward with monetary easing that will do little to boost growth. “The actions taken in August and September tend to undermine the Fed’s credibility by giving the impression that we think such policies can have a major impact on the speed of the recovery,” Plosser said today in a speech in Radnor, Pennsylvania. “It is my assessment that they will not.” The policy, so-called Operation Twist, is likely to reduce long-term rates by “less than 20 basis points” and “the pass- through to the rates at which consumers and businesses actually borrow is likely to be much less,” Plosser said at a Business Leaders Forum at the Villanova School of Business. “I am skeptical that this will do much to spur businesses to hire or consumers to spend.”
  • Rare Earths Fall as Toyota, GE Develop Alternatives. Rare-earth prices are set to extend their decline from records this year as buyers including Toyota Motor Corp. (7203) and General Electric Co. (GE) scale back using the materials in their cars and windmills. Prices for cerium and lanthanum, the most abundant rare- earth elements, will drop by 50 percent in 12 months, Christopher Ecclestone, an analyst at Hallgarten & Co. in New York, has forecast. Neodymium and praseodymium, metals used in permanent rare-earth magnets, may fall as much as 15 percent, he said.
Wall Street Journal:
  • Greek Government Divided on Job Cuts. Greece's Socialist government is divided over a controversial plan to cut tens of thousands of jobs in the public sector, as it has promised the country's international creditors, with some agencies declining to put forward layoff plans. Two senior government officials with direct knowledge of the matter said the issue was to be discussed at a cabinet meeting Thursday—coinciding with the return of a troika of international inspectors to Athens—but was pulled from the agenda after many ministries failed to compile lists of personnel to be cut. Instead, the cabinet will revisit the issue at an extraordinary meeting.
  • Soros: Euro Zone Needs Common Treasury, Other Remedies. European monetary authorities must act fast to regain the control they've lost over financial markets, or the result is likely to be a second Great Depression, hedge fund investor George Soros warned Thursday in an opinion essay published online by the Financial Times. Soros called for "three bold steps" that "would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved."
Business Insider
Zero Hedge:
Bespoke Investment Group:
  • Bullish Sentiment Back Above 30%. (graph) In this week's sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment rose back above 30% to 32.51% from last week's level of 25.33%. This week's 7.18 percentage point increase in bulls was the largest one week increase since June 23rd.
  • RIM(RIMM) Says Remains Committed to PlayBook Tablet. BlackBerry maker Research In Motion brushed off suggestions on Thursday that it would discontinue production of its PlayBook computer tablet as "pure fiction" after an analyst said the company may be considering an exit from the market. "Rumors suggesting that the BlackBerry PlayBook is being discontinued are pure fiction," RIM spokeswoman Marisa Conway said in an emailed statement. "RIM remains highly committed to the tablet market and the future of QNX in its platform."
USA Today:
  • Money Managers See Opportunities in Stocks. Despite worries on Wall Street that the weak economy will fall back into recession and drag stocks down more, eight of 10 money managers believe the USA will avoid a double dip, a survey of investment managers by Russell Investments to be released Thursday found. The fear of another downturn, just two years after the end of the Great Recession, has been a big factor in the stock market's swoon since its April high and the wildest price swings in history. But the message being sent by 79% of the 102 money managers in the quarterly survey who say another recession is unlikely is there might be more opportunities to make money in stocks than gloomy headlines suggest.
Financial Times:
  • Eurozone Crisis: Live Blog.
  • Chinese Property Boom Starts to Wobble. Chinese bonds and equities are flashing warning signs that suggest the booming mainland property sector is heading for a bust – a development that would send shockwaves through financial markets worldwide. A sector that was until last year the darling of international investors is turning into a horror show as traders have started to digest evidence that real estate prices are falling and developers are losing access to funding.
  • 'Greece Will Default'. (video) Ariel Bezalel, manager of the Jupiter Strategic Bond Fund, tells Robert Miller he expects a Greek debt re-structuring and calls on Eurozone politicians to prevent the crisis from engulfing other euro member states.
  • Bank of England Says Squeeze on Family Finances to Worsen With Inflation Set to Rise Above 5%. The squeeze on family finances will get worse this autumn as household energy bills soar, the Bank of England has warned. Inflation is expected to jump from the current level of 4.5 per cent to more than 5 per cent. Hard-pressed households are already £728 a year worse off than they were 12 months ago because of rising living costs, according to a recent study by Asda. But Spencer Dale, the Bank of England’s chief economist, told the Daily Mail that families should brace themselves for further pain in the coming months. In an interview in which he warned the global economy is at risk of ‘a rather nasty downward spiral’, he blamed the surge in the cost of living on double-digit price rises by the country’s energy giants.
The Guardian:
  • Subprime Crisis Sweeps Wenzhou as Bankrupt Bosses Flee. Up to 29 bankrupt bosses in Wenzhou, a manufacturing center in south China’s Zhejiang Province, have fled since April this year and another one committed suicide, the 21st Economic Herald reported, reflecting rising money tensions in small Chinese companies. Among the 29 bosses, 11 are leather shoe and leather products makers, five in electronic industry, four in iron and copper sector while two are operating restaurants, with assets value in each of these companies reaching 100 million yuan, the report said. The bosses fled brought with no less than 2.9 billion yuan worth of assets, according to a preliminary estimate. The situation is getting worse in September, with on a single day of September 25, nine bankrupt bosses fled in Wenzhou, the newspaper said, quoting a government source without giving the person’s name. Authorities have realized the problem. Acting Governor of Zhejiang Province has called Saturday to expand financing channels for small companies. The bankruptcy of companies in the city is due to a restless expansion and borrowing at a high rate from unofficial channels against a backdrop of unfavorable micro economic situation, said Chen Derong, the party chief in Wenzhou.