North American Investment Grade CDS Index 97.01 bps -1.17%
European Financial Sector CDS Index 108.49 bps -5.22%
Western Europe Sovereign Debt CDS Index 150.0 bps +.11%
Emerging Market CDS Index 197.97 bps -2.46%
2-Year Swap Spread 17.0 unch.
TED Spread 17.0 unch.
Economic Gauges:
3-Month T-Bill Yield .11% unch.
Yield Curve 204.0 +1 bp
China Import Iron Ore Spot $145.30/Metric Tonne +.83%
Citi US Economic Surprise Index -2.80 -3.6 points.
10-Year TIPS Spread 1.98% +6 bps
Overseas Futures:
Nikkei Futures: Indicating +42 open in Japan
DAX Futures: Indicating +8 open in Germany
Portfolio:
Higher: On gains in my Tech, Ag, Medical, Retail and Biotech long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite another poor jobs report and recent gains. On the positive side, Gaming, Disk Drive, Steel, Ag, Oil Service, Coal, Airline, Road & Rail and Construction shares are especially strong, rising 1.75%+. Small-caps and cyclicals are outperforming. The S&P GSCI Ag Spot index is soaring again, rising +6.31% today, lumber is gaining +4.48% and copper is rising +2.91%. The Spain sovereign cds is falling -4.0% to 218.87 bps and the Greece cds is declining -2.23% to 739.04 bps. The -14.31% decline over the last 5 days in the Euro Financial Sector CDS Index is a major positive. S&P 500 implied correlation is breaking below its 200-day moving average today for the first time since May to 64.06%, which is also a positive. On the negative side, Bank and Semi shares are down on the day. (XLF) and (IYR) have been underperforming throughout the day. Gold is rising +.92%. The 10-year yield is flat again today at 2.38% despite equity gains. Stock investors continue to ignore most negatives as bad news means rising odds for QE-2, which short-term investors continue to cheer. The DJIA's breaking above 11,000 will likely lead to further short-term gains as performance angst kicks into high-gear for many. One of my longs, (MOS), is jumping +7% today on soaring ag spot prices and buyout speculation. I still see further upside in the shares from current levels as recent positives are likely not yet priced in. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling sovereign debt angst, technical buying, buyout speculation, investor performance angst, commodity strength and tax policy/election optimism.
Payrolls Decline More Than Forecast. The U.S. lost more jobs than forecast in September as local governments fired teachers and other workers in response to declining tax revenue. Payrolls fell by 95,000 workers after a revised 57,000 decrease in August, Labor Department figures in Washington showed today. Wages and the workweek stagnated. The unemployment rate held at 9.6 percent in September, the Labor Department said. The rate was forecast to rise to 9.7 percent, according to the median forecast in a Bloomberg News survey of 83 economists. Today’s jobs report is the last before the Nov. 2 congressional elections that threaten to deprive the Democrats of their majorities in the House and Senate, partly as a result of voter disenchantment with President Barack Obama’s handling of the economy. Obama’s job approval over a three-day period that ended Oct. 5 was 43 percent, compared with 53 percent at the same time last year, according to a poll from Princeton, New Jersey-based Gallup Inc. The jobless rate has equaled or exceeded 9.5 percent for 14 consecutive months, surpassing the 13-month period from mid 1982 to mid 1983 as the longest span of elevated joblessness since monthly records began in 1948. “If we’re only creating jobs at this pace, the unemployment rate is going to go higher,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who forecast a 65,000 gain in private payrolls. “We aren’t creating enough jobs to keep it steady.” The buying power of consumers whose purchases make up nearly 70 percent of the economy isn’t improving, today’s report showed. Average hourly earnings were little changed at $19.10, and the average work week for all workers held at 34.2 hours. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 17.1 percent from 16.7 percent.
Credit Risk Index Falls as Jobs Report Bolsters Bets Fed Will Buy Assets. A gauge of corporate credit risk in the U.S. fell to a five-month low as a bigger-than-estimated decline in the nation’s payrolls last month bolstered bets the Federal Reserve will increase asset purchases to support the economy. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 1.1 basis point to a mid-price of 97.3 basis points as of 8:54 a.m. in New York, according to Markit Group Ltd.
U.S. Two- and Five-Year Yields Fall to Record Lows on Jobs, Fed Outlook. Treasuries rose, pushing two- and five-year yields to record lows as data showing U.S. employers cut more jobs than forecast last month spurred speculation the Federal Reserve will buy more bonds to stimulate the economy. Ten-year note yields fell to the lowest level since January 2009 as investors bet the floundering labor market signals weaker-than-expected growth in the broader economy this year. Yields have slid this week as investors speculated the Fed will purchase more assets, a strategy called quantitative easing. Barclays Plc said it expects “an incremental large-scale” purchase program to start next month.
Corn, Soybeans, Wheat Surge by Exchange Limits as U.S. Cuts Supply Outlook. Grain and oilseed prices rose the most allowed by the Chicago Board of Trade after the U.S. government said domestic and world supplies of corn, soybeans and wheat will be smaller than forecast last month. The U.S. Department of Agriculture cut its domestic corn- crop estimate for the second time in as many months, predicting a 3.4 percent drop from last year. While farmers will collect the most soybeans ever, the total will be 2.2 percent less than forecast in September, the USDA said. Global wheat inventories will be 1.8 percent less than projected last month. “Although the trade had increasingly braced for a downward revision in corn yields, the USDA provided a far larger-than- expected shock,” Lewis Hagedorn, a commodity analyst for JPMorgan Chase & Co., said in a report. “Meaningfully higher prices are now required in order to ration demand,” specifically for corn used to make ethanol, Hagedorn said.
Bullard Sees No 'Obvious' Case for More Stimulus as Risks Ease. The chance of a renewed U.S. recession has receded and there may not be a strong enough case for additional stimulus, Federal Reserve Bank of St. Louis President James Bullard said. “The risk of double-dip recession has probably receded some in the last six to eight weeks,” Bullard said today in an interview with CNBC. “The economy has slowed, but it hasn’t slowed so much that it’s an obvious case to do something. A very reasonable decision would be to say, ‘maybe we should push it off a meeting or two and see how the data comes in.’”
CF(CF) Leads Fertilizer Makers Higher on Corn-Forecast Cut, Buyout Speculation. CF Industries Holdings Inc. led fertilizer makers higher in New York trading after the U.S. government cut a corn-crop forecast and Reuters reported that Rio Tinto Group is interested in buying potash makers. CF jumped as much as 10 percent, the biggest intraday gain in 19 months. The Deerfield, Illinois-based company rose $8.83, or 8.8 percent, to $107.35 as of 10:50 a.m. in New York Stock Exchange composite trading. Canada’s Agrium Inc. climbed 6.2 percent to $80.04 and Plymouth, Minnesota-based Mosaic Co. advanced 7.4 percent to $66.08. “The bulk of today’s move is coming from” the U.S. Department of Agriculture’s crop forecast report, Edlain Rodriguez, a New York-based analyst at Gleacher & Co., said in a telephone interview. “Rio’s interest in fertilizer assets is adding to the fire. Farm-equipment makers Deere & Co.,CNH Global NV and Agco Corp. also gained. Meat processors Tyson Foods Inc., Sanderson Farms Inc. and Smithfield Foods Inc., which use corn as animal feed, dropped. Deere rose 5.6 percent to $75.92, CNH rose 6.3 percent to $40.07 and Agco gained 8.1 percent to $42.39. Tyson dropped 6.6 percent to $15.20, Sanderson declined 5.8 percent to $39.05 and Smithfield fell 5.4 percent to $15.19.
HP(HPQ), Oracle(ORCL) Lead $50 Billion Acquisition Spree Tearing Down Tech Barriers. Hewlett-Packard Co., Oracle Corp. and International Business Machines Corp. are leading an acquisition spree that has propelled the value of U.S. technology deals 24 percent to more than $50 billion this year and broken down decades-old barriers between industries. The companies are using purchases to become one-stop providers of products from computers to software to networking gear, rather than focusing on a niche.
Leuthold Boosts Allocation to Stocks on View S&P 500 Will Set a 2010 High.Steve Leuthold, whose Leuthold Core Investment Fund has beaten 85 percent of its competitors in the past five years, said he boosted his stock holdings and may invest as much as 70 percent in equities because the market is poised to reach a new 2010 high. The investor, who bet on stocks before the Standard & Poor’s 500 Index started the biggest rally since the Great Depression in March 2009, said he lifted the net equity position of the $1.32 billion Leuthold Core Investment Fund and the $1.25 billion Leuthold Asset Allocation Fund to 60 percent from 46 percent in July. The Leuthold Global Fund, which has $294.5 million in assets, has between 62 percent and 63 percent in equities, he said.
French Senate Votes to Raise Retirement Age to 62 as Unions Ready to Strike. France’s Senate voted today in favor of raising the legal retirement age to 62 from 60, part of President Nicolas Sarkozy’s pensions system overhaul. Lawmakers in the upper chamber of Parliament voted 186 to 153 for the increase, the Senate press office said. The senators are now debating increasing the eligible age for a full pension to 67 from 65.
Ford(F), Dealers Say Credit Access Helping Recovery in Auto Sales. New-vehicle buyers are having an easier time getting credit, signaling U.S. auto sales may continue to accelerate after last month reaching the fastest pace since the government’s “cash for clunkers” program. Federal Reserve data shows banks began easing consumer- lending standards in July, and the Fed’s loan facility program rejuvenated the market for securitized auto debt, said Ellen Hughes-Cromwick, Ford’s chief economist. Data from CNW Research shows improved sales for buyers with weaker credit scores.
Analyst: Apple(AAPL) Will Retain At Least Half the Growing Tablet Market. “The iPad’s sales momentum out of the gate has been unprecedented for a new product, and there appears to be no boundaries to the use case for the device, meaning the adoption curve could remain steep beyond the near term,” he theorizes. “We think that the iPad’s form factor, technology, and content ecosystem could help the company retain 50 percent of the tablet market next year, and anything above that number could represent a significant source of upside to our estimates.” One last point worth noting here. As slick as some of these rival tablets might prove to be, they’re still likely to have a hard time stealing market share from the iPad because of Apple’s broad app and content ecosystem. Says Moskowitz, “With tablets, we think that offering a trove of applications, as is industry practice in smartphones, will not be enough. The ability of the user to access content, such as movies and TV shows, is more important for tablet users, and this is where Apple has fought hard to secure access to the content. We think it will take time for other vendors to establish similar access to the content.”
Bloomberg Businessweek:
MGM Resorts(MGM), Wynn(WYNN) Jump as Las Vegas Strip Gaming Sales Rise. Shares of MGM Resorts International, Las Vegas Sands Corp.(LVS) and Wynn Resorts Ltd. rose after Las Vegas Strip gambling revenue jumped 21 percent in August, showing the biggest U.S. casino city is emerging from a record slump. Revenue rose to $544.4 million from $449.6 million in the same month a year earlier, Nevada’s Gaming Control Board said today in an e-mail. Strip casino proceeds increased 4.5 percent in the first eight months of this year.
CNBC:
Bank of America's(BAC) Big Freeze Chills Housing Recovery. It was bound to happen, and it did. Bank of America extended its foreclosure freeze to all 50 states as it continues internal "assessments" of its foreclosure practices. "Our ongoing assessment shows the basis for our past foreclosure decisions is accurate," reads their statement.
China Telecom May Be Next iPhone Partner: Report. China Telecom Corp. will likely become the second Chinese operator after China Unicom (Hong Kong) Ltd. to offer Apple Inc.'s iPhone in mainland China, the South China Morning Post reported Friday, citing analysts at Deutsche Bank AG. The analysts said in a report China Unicom's exclusivity deal with Apple on the mainland will likely come to an end early next year, according to the newspaper. The U.S. firm plans to mass-produce an iPhone that can run on the CDMA 2000 mobile technology standard that China Telecom operates its third-generation network on, and is in talks with the Chinese company, according to the report.
Hedge Fund Manager Ackman Moves In On JCPenney(JCP). After a bitter proxy battle with Target's board of directors in 2009, hedge fund manager Bill Ackman is setting his sights on another retailer, J.C. Penney.
Sharron Angle Surge Unnerving Nevada Democrats. New polling out of Nevada is unnerving Democrats who fear Republican Sharron Angle’s campaign is surging despite enduring millions of dollars’ worth of TV ad attacks from Senate Majority Leader Harry Reid. The three most recently released public polls show Angle with a nominal edge, though all have been within the margin of error.
Reuters:
US Sends $727 Million to Community Health Centers. The Obama administration on Friday announced $727 million will go to help fix up community health centers across the country, the first of $11 billion for the centers promised by the U.S. healthcare reform law. The money will go to 143 community health centers -- which provide services regardless of patients' ability to pay -- in about 40 states, Washington D.C., and Puerto Rico, the Health and Human Services department said.
A Distorted US 10-Year Swap Spread?BNP Paribas observes on Friday that the US 10-year swap spread — the difference between the swap rate on a contract and the yield on a government bond — has moved sharply out recently, while the VIX — a measure of volatility, also known as the fear index — has remained subdued. This they say could be down to distortions caused by prospects for yet more quantitative easing, with markets assuming the Fed will concentrate on putting public debt on the US balance sheet, rather than private risk.
Diario:
Fitch Ratings considers the Portuguese government will meet its budget deficit target for this year, citing Fitch Associate Director Douglas Renwick.
Bond Distress Drops to 5-Month Low as Junk Rises Above Par: Credit Markets. The percentage of corporate bonds considered in distress receded to a five-month low as record sales of high-yield debt and declining borrowing costs convince investors that the riskiest companies can pay their lenders. The number of speculative-grade companies worldwide with yields at least 10 percentage points more than government bonds declined to 290, or 12 percent of the total, the lowest share since April and down from 15.9 percent at the end of August, according to Bank of America Merrill Lynch index data. A decline of 3.23 percentage points last month was the most since March. Junk-rated borrowers globally raised a record $98.7 billion last quarter selling bonds as investors plow cash into the market to grab higher relative yields, helping the weakest companies shore up their balance sheets. Defaults by high-yield issuers fell to 4 percent last month from 6.2 percent in June, Moody’s Investors Service said today. “There’s a tremendous yield hunger that isn’t satisfied and that’s pushing up the prices in all the bottom-tier names,” said Margaret Patel, who oversees about $1 billion of assets as a fund manager at Wells Fargo & Co. in Boston.
Portugal Braces for Its First Joint General Strike in 22 Years Over Cuts. Portuguese Prime Minister Jose Socrates will face the country’s first joint general strike in 22 years as the two biggest labor organizations prepare to protest against the government’s austerity measures. Portugal plans to cut the wages of state workers and raise taxes to convince investors it can narrow the euro region’s fourth-biggest budget gap after Greece’s debt crisis led to a surge in borrowing costs for high-deficit nations. Portugal’s government is seeking to cut the budget gap from 9.3 percent of gross domestic product in 2009, the fourth- highest in the 16-nation euro region after Ireland, Greece and Spain, to 7.3 percent this year and 4.6 percent next year. It aims reach the European Union limit of 3 percent in 2012.
Adobe Shares(ADBE) Surge on Report of Microsoft's(MSFT) Interest in Merger. Adobe Systems Inc. shares surged as much as 17 percent after the New York Times reported that Microsoft Corp. Chief Executive Officer Steve Ballmer recently met with Adobe CEO Shantanu Narayen. The executives recently had a meeting at Adobe’s offices in San Francisco, according to two people familiar with the matter, who asked not to be identified because the meeting was private.
Chamber's Donohue Says Obama 'Suffocating' U.S. Business Spirit. President Barack Obama’s administration is imposing regulations that are “suffocating the entrepreneurial spirit,” the head of the U.S. Chamber of Commerce said. Tom Donohue, president of the largest U.S. business group, said the Chamber is starting a new political campaign today against rules on health care, finance, the environment and labor. The Chamber has said it will spend $75 million backing pro-business candidates in the November elections and has led growing business criticism of Obama in recent months. “The regulatory impact on the business community is pervasive, insidious, and needs to be exposed,” Donohue said in prepared remarks for a speech in Des Moines, Iowa. “It is suffocating the entrepreneurial spirit.”
IBM(IBM) Hits Record as Palmisano Focuses on Software, Services. International Business Machines Corp. rose to the highest level since it went public in 1915 as investors show support for Chief Executive Officer Sam Palmisano’s strategy of remaking the 99-year-old company. IBM gained 88 cents to $138.72 at 4:01 p.m. in New York Stock Exchange composite trading, topping the previous record of $137.88, adjusting for stock splits, reached in July 1999.
Inflation Bonds Show No Trichet Accord Amid Double-Dip Threat: Euro Credit. Bonds that signal investor inflation expectations show that traders disagree with European Central Bank President Jean-Claude Trichet’s declaration that another recession isn’t “in the cards.” The gauge of how the market perceives consumer-price growth over five years beginning in five years’ time, a yardstick Trichet says is used by the ECB, slid this week to the lowest level in at least six years. In France, the yield difference between 10-year notes and inflation-linked debt fell to 182 basis points from this year’s high of 229 basis points in April. While Trichet said yesterday risks to the inflation outlook are “slightly tilted to the upside” after policy makers kept their main interest rate at an all-time low of 1 percent, JPMorgan Chase & Co. estimates investors have bought a record $20 billion worth of derivatives that protect against the risk of deflation this year. Consumer-price gains won’t exceed 2 percent next year in Germany, the region’s biggest economy, amid austerity programs enacted in nations from Ireland to Portugal to Greece, analyst surveys compiled by Bloomberg show. “Demand is huge, indicating some in the market have a very pessimistic view on inflation and growth,” said Jasper Falk, the London-based head of inflation trading at JPMorgan. “In the past, the possibility of having 10 years of cumulative deflation in the euro region was seen as remote and the cost of protection against that was very low. No one thought it was cheap. They thought it was irrelevant.”
McDonald's(MCD) Offers Taste of Obama Sausage-Making: Caroline Baum. “We have to pass the bill so that you can find out what is in it.” -- House Speaker Nancy Pelosi, March 9, 2010. She wasn’t kidding. The public got to peek under the hood last week when the Wall Street Journal reported that McDonald’s Corp. wanted out: out of a requirement in the new health-care law that compels employers to spend 80 to 85 percent of premiums on medical benefits. Who knew? For McDonald’s mini-med health-care plan, a low-cost, limited plan covering about 30,000 hourly fast-food workers, the minimum medical loss ratio was economically unfeasible. The company asked for a waiver, according to memos provided to the Journal. It turns out lots of other companies are seeking waivers for limited benefit plans -- along with some states, like Maine, with a small number of insurers, according to Joseph Antos, a health-care scholar at the American Enterprise Institute, a conservative think tank. Another group is lining up to apply for exclusions from the minimum annual cap on benefits that is part of the law. No wonder the Department of Health and Human Services had to put out a memo on waiver guidance.
Greenspan Says U.S. Fiscal Deficit Is 'Scary' as Debt Increases. Former Federal Reserve Chairman Alan Greenspan said the fiscal deficit in the U.S. is “scary” and the government needs to reduce entitlement programs. “We’re involved in a dangerous game,” Greenspan said today at a foreign-exchange conference in New York sponsored by Bloomberg LP, the parent of Bloomberg News. “We’re increasing the debt held by the public at a pace that is closing” the gap between our debt and “any measure of borrowing capacity,” Greenspan said. “That cushion is growing very narrow.” U.S. companies may be holding back on investment because of the rising federal deficit, which causes uncertainty about future tax policies, Greenspan said in an opinion article for the Financial Times this week. Weak investment by businesses in capital equipment and fixed assets has helped to crimp the U.S. economic recovery, he said. “You need” austerity, said Greenspan, a paid speaker at the event. “We’re going to have to start to cut” from government entitlement programs, he said, adding that reducing the budget is better than raising taxes in closing the U.S. budget deficit. Greenspan said that if the Fed decides to expand its balance sheet through purchases of bonds, a process known as quantitative easing, it may not be enough to get “money moving” and spur growth in the U.S. economy. Should the Fed increase “excess reserves and they just sit there on the asset side of commercial banks’ balance sheets not being relent, you’ve merely gone through an interesting bookkeeping exercise,” Greenspan said. “You’ve got to break that psychology that prevents that current trillion” in reserves from being relent, he said.
Wall Street Journal:
Genzyme(GENZ) Will Explore 'White Knight'. Genzyme Corp. will evaluate alternatives for the biotechnology firm, including reaching out to other companies, as part of its defense against an $18.5 billion hostile bid from Sanofi-Aventis SA, the company said Thursday.
U.K. Treasury Chief Credit Coalition's Spending Cuts. British Treasury chief George Osborne said the austerity program pursued by the U.K.'s new coalition government has taken the country "out of the financial danger zone" and removed doubts in markets about "whether Britain can pay its way in the world."
US Lawmakers Push for Halt to Foreclosure Proceedings. A growing number of U.S. congressional leaders are pushing mortgage lenders to halt foreclosure proceedings in the wake of a scandal surrounding poor documentation practices.
MGM's Creditors Voting on Debt Plan. Movie studio Metro-Goldwyn-Mayer Inc. is in the final stages of preparing a bankruptcy-protection filing, a move that will pare the debt of the iconic studio and place it under the management of the two founders of rival Spyglass Entertainment.
New Rules on Bank Breakups. Federal regulators are expected to outline as early as Friday rules for seizing and dismantling a large financial firm that could allow some creditors to get a better deal than others in limited cases.
Alcoa(AA) Earnings, Revenue Both Easily Top Estimates. The company also raised its growth forecast for global aluminum demand this year to 13 percent from 12 percent. Alcoa shares popped almost 3 percent higher after briefly being halted in extended trading Thursday.
$100 Oil Could Sink The Fed's QE2. As the U.S. prepares to embark on a new round of Federal Reserve quantitative easing, there are plenty of reasons to doubt that it is the right course for the economy and job creation. Here’s another: The voyage might have to be aborted — or at least diverted — soon after QE2 leaves the dock because the Fed may be sailing into a political hurricane. Even before the anticipated launch of the next round of Treasury purchases — it’s expected to be made official on Nov. 3 — the Fed’s unmistakable signals have fueled commodity price gains as the dollar has sagged. Since the Fed’s Sept. 21 policy statement, crude oil had surged more than 9% to above $83 a barrel on Wednesday, approaching its highest levels since October 2008. (Oil prices did retreat on Thursday.) The risk for the Fed is that such price increases will be felt in the economy long before any modest positive impact from lower interest rates. To some extent, unconventional Fed monetary policy actions may be arcane enough to make them an unlikely target of populist politicians and grass-roots activists. Still, just last year, the Fed came under blistering criticism for its close-to-the-vest dealings. Legislation to audit the Fed, spearheaded by Tea Party favorite Ron Paul in the House and self-styled socialist Bernie Sanders in the Senate, was largely incorporated in the Dodd-Frank financial regulatory reform bill. If there’s one thing that may turn Fed policy from yawn-inducer to rallying cry, it’s oil prices rising above $100 a barrel, which would hit Americans in their wallets on a frequent basis.
Washington Post:
North Korea Pressing Forward on Nuclear Program, Report Says. North Korea appears to be moving forward with a program to enrich uranium for nuclear weapons, a development that would enhance its ability to produce bombs and sell its nuclear weapons technology abroad, according to a report to be released Friday. The report, "Taking Stock: North Korea's Uranium Enrichment Program" by the Institute for Science and International Security, comes as a senior South Korean official warned that North Korea's nuclear program is "evolving even now at a very fast pace."
Politico:
Ghailani Case Ruling Could Hurt Terror Trials. A federal judge’s ruling Wednesday that voided key testimony in a case against a former Guantanamo inmate gave critics new arguments against President Barack Obama’s intent to try terrorist suspects in civilian courts “whenever feasible.”
Stimulus Funds Went to Dead People. Approximately $18 million worth of stimulus funds went to Americans who are dead, according to report released by the Social Security Administration's inspector general released Thursday. More than 89,000 payments worth $250 each, taken from the $787 billion stimulus package, were doled out to either dead people or prison inmates. Seventeen thousand incarcerated Americans received an aggregate $4.3 million from the economic relief package.
Reuters:
PIMCO's El-Erian - Fed's Policy Near 'Becoming Ineffective'. The Federal Reserve's loose monetary policy is in danger of "becoming ineffective," Mohamed El-Erian, the co-chief investment officer at bond fund PIMCO, said on Thursday. "We're getting to the point where monetary policy is becoming ineffective," El-Erian said at an event sponsored by the Financial Times. El-Erian helps oversee more than $1.1 trillion in assets, mostly in fixed-income instruments. "We have a Fed that seems to be unwilling to stay on the sidelines," he said.El-Erian said the biggest story in the last 18 months is that fiscal and monetary responses have fallen short of policy expectations. He also said he sees a 55 percent probability on the U.S. economy having sluggish growth, a 30 percent chance of a double-dip recession and a 15 percent chance that the economy will perform surprisingly well.
India Wants Bold IMF Quota Changes - Mukherjee.Restoring the International Monetary Fund's credibility after the global financial crisis requires a bold shift of power to developing economies from the rich nations which have long controlled the IMF, India's Finance Minister Pranab Mukherjee said on Thursday. "These changes can enhance the fund's credibility, only if, bold and forward-looking quota and governance changes are implemented, which will restore the fund's legitimacy," he said in statement to the IMF. "The burden of the quota shift to dynamic emerging markets and developing countries has to be borne primarily by advanced economies and I reiterate my call for a shift of 5 to 6 per cent in quota share from advanced countries to developing countries," Mukherjee said.
Financial Times:
Seoul Finds New Way to Finance Iran Trade. South Korea has appointed two state-run banks to finance commerce with Iran and revive business ties damaged by sanctions in an effort to protect $10bn in annual trade with Tehran. Woori Bank and the Industrial Bank of Korea will from this month be allowed to finance legitimate trade with Iran in sectors unaffected by sanctions, channelled through Iran’s central bank.
Japan to Help Develop Rare Earth-Like Materials. The Japanese government plans to earmark funds worth 1.2 billion dollars in this year's supplementary budget to secure the stable supply of rare earth minerals. The plan is part of the government's efforts to reduce the country's heavy reliance on imports from China of rare earth materials, which are vital for producing high-tech products. China is the world's largest producer of rare earth materials. It announced in July that it would largely cut its exports of the metals. It then suspended shipments to Japan following a collision between a Chinese fishing boat and 2 Japanese Coast Guard ships near the Senkaku Islands in the East China Sea. The government plans to use the funds to help with the development of substitutes for rare earth minerals. The government says it will also try to find other countries which can provide Japan with rare earth metals. It will provide subsidies for manufacturers which make plant investments in Japan to safeguard rare earth-related technologies.
Securities News:
A Chinese taxation official said the government should levy a tax on property. The government will levy a tax on some property as a trial in select cities before expanding the measures nationwide, citing the official.
Evening Recommendations RBC Capital:
Rated (ILMN) Outperform, target $59.
Rated (TSL) Outperform, target $38.
Rated (WAT) Outperform, target $81.
Rated (LIFE) Outperform, target $54.
Rated (YGE) Outperform, target $17.
Night Trading
Asian equity indices are -.50% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 106.0 -3.0 basis points.
Asia Pacific Sovereign CDS Index 97.25 -1.75 basis points.
The Change in Non-farm Payrolls for September is estimated at -5K versus -54K in August.
The Change in Private Payrolls for September is estimated at 75K versus 67K in August.
The Unemployment Rate for September is estimated to rise to 9.7% versus 9.6% in August.
Average Hourly Earnings for September are estimated to rise +.2% versus a +.3% gain in August.
10:00 am EST
Wholesale inventories for August are estimated to rise +.5% versus a +1.3% gain in July.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Tarullo speaking, ECB's Trichet speaking, World Bank/IMF meeting and the (CVS) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 99.16 bps +1.23%
European Financial Sector CDS Index 113.40 bps -.03%
Western Europe Sovereign Debt CDS Index 149.83 bps -1.43%
Emerging Market CDS Index 202.02 bps -1.21%
2-Year Swap Spread 17.0 unch.
TED Spread 17.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .11% unch.
Yield Curve 203.0 +1 bp
China Import Iron Ore Spot $144.10/Metric Tonne +.07%
Citi US Economic Surprise Index .80 +1.3 points.
10-Year TIPS Spread 1.92% -2 bps
Overseas Futures:
Nikkei Futures: Indicating -29 open in Japan
DAX Futures: Indicating +6 open in Germany
Portfolio:
Slightly Higher: On gains in my Tech and Biotech long positions
Disclosed Trades: Added to my (SXCI) long, took profits in another long
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower despite better economic data and better action in the tech sector. On the positive side, HMO, Disk Drive, Computer, Software and Alt Energy shares are especially strong, rising 1.0%+. Small-caps are outperforming. (IYR) has traded relatively well throughout the day. The S&P GSCI Ag Spot index is surging, rising +1.96%. Gold put in a reversal today and is down -.8%. The Spain sovereign cds is falling -1.05% to 227.96 bps and the Portugal cds is declining -1.07% to 401.42 bps. On the negative side, Education, Paper, Steel and Gold shares are under meaningful pressure, falling more than 1.5%. Copper is declining -2.22% and the 10-year yield is flat despite the drop in jobless claims. The Greece sovereign cds is rising +1.23% to 768.90 bps. Investor angst is fairly elevated today given the mixed performance in the major averages, which is a big positive ahead of tomorrow's jobs report. (ADBE) is soaring +7.66% on (MSFT) buyout speculation, which is also a broad market positive. The bears were once again unable to gain traction on a significant morning reversal lower in stocks. I would characterize today's overall action as another healthy consolidation day after recent gains. A poor jobs report tomorrow would likely initially result in equity weakness, however QE-2 odds would jump again, which could boost stocks later in the day. A positive report may have the same result as QE-2 odds would fall substantially, which could initially hurt stocks. However, by day's end a positive number would likely be viewed favorably by investors. I continue to believe that, while investors seem to cheer rising QE-2 expectations short-term, any substantial QE-2 would be a huge long-term negative for stocks and the economy. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, falling sovereign debt angst, technical buying, buyout speculation and tax policy/election optimism.
