North American Investment Grade CDS Index 85.63 +3.03%
European Financial Sector CDS Index 150.29 bps -2.39%
Western Europe Sovereign Debt CDS Index 185.17 bps -2.54%
Emerging Market CDS Index 202.68 +.43%
2-Year Swap Spread 23.0 unch.
TED Spread 15.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 282.0 +6 bps
China Import Iron Ore Spot $185.40/Metric Tonne +1.48%
Citi US Economic Surprise Index +39.20 -8.0 points
10-Year TIPS Spread 2.31% -5 bps
Overseas Futures:
Nikkei Futures: Indicating +78 open in Japan
DAX Futures: Indicating +40 open in Germany
Portfolio:
Slightly Higher: On gains in my ETF hedges and Retail/Medical long positions
Disclosed Trades: Covered my (IWM)/(QQQQ) hedges and then added them back
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite mostly positive economic data and diminishing eurozone sovereign debt angst. On the positive side, I-Banking, Retail and Education shares are especially strong, rising more than 1.0% today. (XLF) has outperformed throughout the day. Lumber is rising +2.2%. The Spain sovereign cds is declining -2.25% to 276.59 bps, the Belgium cds is falling -2.54% to 188.63 and the Japan sovereign cds is falling -3.24% to 82.72 bps. The Western Europe Sovereign CDS Index is now -33 bps off its record high set on January 11. Moreover, the US Muni CDS Index is dropping -2.41% to 209.13 bps. The AAII % Bulls fell to 50.7 this week, while the % Bears rose to 29.10, which is a mild positive. On the negative side, Road & Rail, HMO, Networking, Disk Drive, Computer, Ag and Oil Tanker shares are under significant pressure, falling more than 2.0%. Tech shares have underperformed substantially throughout the day. Small-cap and Cyclical shares have also underperformed again today. Copper is falling -2.76%. The China sovereign cds is rising +2.35% to 78.03 bps, the Russia sovereign cds is jumping +3.05% to 146.12 bps and the Emerging Markets Sovereign CDS Index is gaining another +4.17% to 196.29 bps. Rough Rice futures have surged +9% in five days. China's 7-day Repo Rate is jumping another +198 bps today to 6.03% on tightening concerns. January option expiration is tomorrow and the DJIA has declined 10 of the last 12 with big losses seen in 2003, 2006 and 2010. The DJIA is holding up very well and is just about -50 points off its recent high. So far, it appears this is just a healthy pullback after recent sharp gains rather than the beginning of a significant decline. However, inflation in emerging markets appears to be more of a problem than is generally perceived and will likely be the catalyst for a more significant decline last this quarter. One of my longs, (GOOG), reports after the close today. I expect a good report, however estimates have risen meaningfully over the last week and tech is currently underperforming, which could limit any near-term upside reaction in the shares. I will look to add to my position on any meaningful pullback from current levels. I expect US stocks to trade modestly lower into the close from current levels on China inflation fears, profit-taking, technical selling, rising long-term rates and more shorting.
Asian Stocks Drop as China Economic Reports Prompt Tightening Speculation. Asian stocks fell, with the regional benchmark index sliding the most in almost two months, as Chinese economic reports prompted speculation the country will do more to fight inflation and U.S. earnings disappointed. The MSCI Asia Pacific Index fell 1.3 percent to 138.66 as of 7:34 p.m. in Tokyo, with about seven stocks declining for every that rose. “It’s fair to say that this data will add to pressure on China to tighten,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Ltd., which manages about $93 billion. Hong Kong’s Hang Seng Index dropped 1.7 percent, its biggest intraday decline in a month, and the Shanghai Composite Index fell 2.9 percent. Japan’s Nikkei 225 Stock Average retreated 1.1 percent. South Korea’s Kospi Index slipped 0.4 percent, while Australia’s S&P/ASX 200 Index dropped 1.1 percent. “If the economy keeps growing at the current pace, inflation will remain alarming,” said Liu Li-Gang, a Hong Kong- based economist at Australia & New Zealand Banking Group Ltd.
Home Sales, Leading Index Show Recovery Widening. Sales of previously owned U.S. homes and the index of leading indicators exceeded forecasts, signs the expansion is gaining momentum at the start of 2011. Purchases of existing houses jumped 12 percent in December to a 5.28 million annual rate, the National Association of Realtors said today in Washington. The New York-based Conference Board’s gauge of the economic outlook for the next three to six months rose 1 percent. Claims for unemployment benefits fell by 37,000 last week, according to the Labor Department.
Europe's Risk Watchdog May Prove Toothless in Struggle to Prevent Crisis. Europe’s new risk watchdog probably lacks the teeth to avert the region’s next financial crisis, economists and analysts say. The European Systemic Risk Board, which aims to identify and warn of brewing risks in the financial system, may fail to prevent future imbalances as it doesn’t have any legal power to enforce action, according to economists at ING Group, Barclays Capital and ABN Amro. “The problem is that these bodies are set up to solve yesterday’s problems,” said Peter Hahn, a former Citigroup Inc. banker who lectures on finance at Cass Business School in London. “They can never do more than flagging any issues,” and whether they can stop a crisis “is questionable.”
EU's Leaders Must End Debt Restructuring 'Taboo,' German CDU's Lauk Says. European leaders should drop their “taboo” against debt restructuring, the head of the business caucus of Chancellor Angela Merkel’s party said, indicating that she has support to take more aggressive action in stamping out the euro-area crisis. “I would recommend looking at it very closely, stop declaring it taboo and do the appropriate analysis to see where that would lead,” Kurt Lauk, president of the German Christian Democratic Union’s Economic Council, said in a phone interview.
Brazil Future Yields Rise on Concern Tombini Debut Increase Too 'Dovish'. Yields on longer-term Brazilian interest-rate futures contracts rose after the central bank failed to signal that it will follow up yesterday’s interest- rate increase with more aggressive moves to rein in inflation. The yield on the contract due in January 2013 rose four basis points, or 0.04 percentage point, to 12.75 percent at 8:45 a.m. New York. The yield on the contracts maturing in January 2017 also increased five basis points, or 0.05 percentage point, to 12.37 percent.
Morgan Stanley(MS) Earnings Rise on Record Brokerage Fees. Morgan Stanley reported a 35 percent increase in fourth-quarter earnings on record revenue from its brokerage, the world’s biggest. Fixed-income trading revenue was the lowest since the fourth quarter of 2008.
Oil Falls Most in Nine Weeks on Concern China to Boost Rates. Crude oil fell the most in nine weeks on concern China will raise interest rates to combat inflation, slowing economic growth and demand for energy. Oil dropped as much as 3.2 percent after China said inflation was 4.6 percent in December. Prices also declined after the Energy Department said that U.S. crude supplies rose for the first time in seven weeks. “Worries about what actions China will take to slow the economy are sending the market lower,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Any Chinese move could lower demand growth.” “China’s voracious appetite for every commodity has been pushing prices higher. The country is now facing the inflation monster and will take additional steps to stem runaway growth.” Crude-oil stockpiles increased 2.62 million barrels to 335.7 million, the Energy Department report showed. A 500,000- barrel decline was forecast, according to the median estimate of 17 analysts surveyed by Bloomberg News. Refineries operated at 83 percent of capacity, down 3.4 percentage points from the previous week, the biggest drop since October 2009. Analysts projected that operating rates would slip 0.5 percentage point. Gasoline inventories climbed 4.44 million barrels to 227.7 million, the highest level since the week ended March 5, according to the department. Stockpiles were estimated to increase by 2.5 million barrels. Supplies of distillate fuel, a category that includes heating oil and diesel, increased 1.04 million barrels to 165.8 million. Stockpiles were forecast to climb by 1 million barrels.
CFTC Weighs Plan to Regulate Agricultural Swaps the Same as Credit Swaps. The U.S. Commodity Futures Trading Commission may remove regulations that for more than a decade treated agricultural swaps and commodity options differently than other transactions in the $583 trillion swaps market. The CFTC’s five commissioners today at a meeting in Washington are considering a proposal that would put agricultural swaps under the same rules as interest rate, credit and other types of swaps. Approval by commissioners would open the measure to public comment before it is completed.
OPEC to Cut Exports as Asian Demand Slows, Oil Movements Says. The Organization of Petroleum Exporting Countries will reduce crude shipments this month as demand from Asia slackens, according to tanker-tracker Oil Movements. Loadings will drop 1.1 percent to 23.55 million barrels a day in the four weeks to Feb. 5 from 23.8 million barrels in the period to Jan. 8, Oil Movements said today in a report. It’s the fourth straight month-on-month decline shown in the consultant’s weekly figures.
Copper Drops Most in Two Months on Speculation China to Restrain Economy. Copper fell the most in two months on concern that China, the world’s biggest metal consumer, will take more steps to restrain the economy. Copper futures for March delivery fell 11.1 cents, or 2.5 percent, to $4.259 a pound at 10:25 a.m. on the Comex in New York.
Hu Flaunts Rising China Power by Using Friendly Confines of Chicago Visit. Chicago is known as a destination for immigrants. Yet in a city with 2.8 million people, the most recent U.S. Census estimates found only about 40,000 Chinese -- just 1.4 percent of the population. So why is the president of China, Hu Jintao, coming to Chicago as the only other stop on a U.S. tour that started in Washington, instead of places with more Chinese residents and businesses, such as San Francisco, New York or Los Angeles? The answer combines long-standing business relationships, pragmatic politicians who have muted their criticism of the Chinese, and one of the first Mandarin-language programs in a U.S. high school. Pushing them all is a mayor whose brother -- a former Commerce secretary and early advocate for China trade -- now works for a city resident, President Barack Obama.
Man Group Sinks as Investor Pulls $1 Billion, Analyst Question Fee Growth. Man Group Plc, the largest publicly traded hedge-fund firm, fell after a single investor pulled $1 billion from its long-only funds and analysts questioned whether performance fees would meet estimates in future quarters. The stock dropped 2.4 percent to 294.1 pence at the close of trading in London.
Boehner Says China Has 'Responsibility to Do Better'. China has a “responsibility to do better” at guaranteeing freedom and dignity for its citizens and the U.S. has a “responsibility to hold them to account,” U.S. House Speaker John Boehner said after meeting with Chinese President Hu Jintao.
Daley Can Defer Capital Gains Tax on $8.3 Million JPMorgan(JPM) Sale. William Daley, President Barack Obama’s new chief of staff, can defer the payment of capital gains taxes on his sale of almost $8.3 million of JPMorgan Chase & Co. shares, based on government ethics rules.
Wall Street Journal:
Hu Stresses Cooperation With U.S., Sovereignty On Tibet and Taiwan. Chinese President Hu Jintao on Thursday reiterated the need for Beijing and Washington to work together and urged the U.S. to respect China's sovereignty over Taiwan and Tibet. "We should treat each other with respect," Mr. Hu said in a speech at a luncheon held by the U.S.-China business council. "Taiwan and Tibet concern China's sovereignty and territorial integrity and they represent China's core interests," he said.
Hacking Attack Prompts Doubts About Security of EU Carbon Market. Trading in European Union carbon permits fell and the BlueNext SA exchange proposed “isolation accounts” after an alleged hacking raised doubts about security in the world’s biggest emissions market. The European Commission, the Brussels-based regulator, suspended most operations yesterday at all 30 of the region’s greenhouse-gas emissions registries after a Czech firm reported about 6.8 million euros of carbon allowances stolen in a hacking attack.
U.S. Prepares to Lift Ban on Guantanamo Cases. The Obama administration is preparing to increase the use of military commissions to prosecute Guantánamo detainees, an acknowledgment that the prison in Cuba remains open for business.
Higher Taxes Wouldn't End Some Deficits. What would an increase in the personal income tax of a size similar to that of Illinois do for other fiscally troubled states? The New York Times examined this question in three embattled places, New York, California and New Jersey.
Cuomo Considers Cutting Up to 15,000 State Jobs. Gov. Andrew M. Cuomo is considering reducing the state workforce by up to 15,000 workers in his budget, the largest cut to the government payroll in recent years, two people briefed on the plan said Wednesday night. The prospective cuts are likely to accompany large reductions in Medicaid and state education spending, those people said, as Mr. Cuomo and his administration seek to close a projected budget gap of more than $9 billion. But the cuts would represent a substantial downsizing of the state’s workforce, including clerical workers, state troopers and park rangers. And that belt-tightening would almost certainly be accompanied by noticeable reductions in government services, though it is hard to predict where and how much until Mr. Cuomo releases his proposed budget in early February.
Solar Firms Frustrated by Permits. Ken Button, the president of Verengo Solar Plus, a residential solar panel installer in Orange, Calif., says his company — and his industry — are being strangled by municipal red tape.
Boston Globe:
Massachusetts Slated to Receive Over $150 Million in Additional Medicaid Funding. Massachusetts, under a deal finalized today with the federal government, is slated to receive upwards of $150 million in additional Medicaid funding that will help shore up hospitals that treat many of the state's low-income patients, including Boston Medical Center and Cambridge Health Alliance. The funding comes on top of roughly $300 million that the federal government already agreed to pay for the purpose last fall. Senator John F. Kerry helped lobby the Obama administration for the additional funding. "It was really key that we do this, it was critical," Kerry said in an interview this afternoon. "We've got safety net hospitals that are on the brink. The lack of this (funding) would have been devastating to our hospitals." The state's so-called safety net hospitals have been struggling since 2006, when the state's ground-breaking health insurance law phased out special payments to BMC and Cambridge Hospital for treating the poor. These payments are now being used to subsidize health coverage for thousands of newly insured residents.
Wall Street Pit:
QE2 Working the Wrong Way - Has the Fed Redefined the Mission? A funny thing happened on the way to QE2: rates rose rather then fall. It appears The Ben Bernank has now redefined the mission from keeping long rates down to pushing stock prices up. He says he wants to create a “wealth effect” among investors that pulls the economy out of the slump. Never mind that rising commodities prices (especially oil) create a corresponding “poverty effect” for the middle class. How will this end?
Seeking Alpha:
David Tepper Turns Cautious. It appears that Appaloosa Management founder David Tepper has turned cautious on the markets.
Dallas Morning News:
Federal Reserve Bank of Dallas President Richard Fisher would have voted against the central bank's plan to buy $600 billion of bonds if he had held voting power, he said in an interview. Fisher, who has a vote this year on the policy-setting FOMC, said that he expects the asset purchase program to be completed and that he "would be wary of further accommodation," according to the Dallas Morning News.
Higher Oil Price Empowers Iran, Blunts Sanctions. Oil's ascent towards $100 a barrel, which OPEC blames on western financial speculators, has handed Iran a windfall to help contain domestic discontent and take the sting out of sanctions designed to squeeze its economy. "A particular challenge for the United States is that rising oil prices undermine policy on Iran," said Simon Henderson, of the Gulf and Energy Policy Program at the Washington Institute think-tank.
Russia Minister Ups CPI Forecast Twice in 20 Minutes. Rising prices will make it difficult to meet the current official inflation target of 6-7%, she said. "So far we do not see any basis to revise our forecast of inflation of around 7 percent, although I stress this is a difficult task," Nabiullina said.
Germany plans to reduce the fee paid to private households for the supply of excess solar energy by as much as 15% from July and a further 9% next year, citing government and industry officials.
Rheinische Post:
Germany should consider completely ending its aid for renewable energy, Lower Saxony's environment minister Hans-Heinrich Sander said, citing an interview.
Bonds at Risk as Moody's, S&P Poised to Lower Credit Ratings: Euro Credit. Europe’s most-indebted countries are vulnerable to additional rating cuts driving up their borrowing costs, which may pressure policy makers to muster a more aggressive response to the region’s debt crisis. “To say that we are at the bottom of credit ratings cycle, by implication one will have to believe that the deleveraging process has come to an end,” said Peter Geikie-Cobb, who helps manage about $6.5 billion at Thames River Capital U.K. Ltd. in London. “I don’t think that’s the case.” Fitch Ratings cut Greece to BB+ on Jan. 14, joining Standard & Poor’s and Moody’s Investors Service in bestowing junk status on the country’s debt. Moody’s began reviewing Portugal and Spain in December after S&P started its three-month clock on whether to downgrade Spanish debt. The European Union’s so-called peripheral countries have seen their creditworthiness evaporate as surging budget deficits and slumping economic growth boosted debt. The bailouts of Greece and Ireland have focused investor scrutiny on other high- deficit countries such as Portugal, Spain and Belgium. “The risks of ratings changes in the next few months are high, and the rather more Pavlovian reaction of short-term trading books will indeed be sensitive to such changes,” said Marc Ostwald, a strategist with Monument Securities in London. A wave of ratings downgrades could begin within weeks.
House Approves Repeal of Obama's Health-Care Reform Law. The U.S. House of Representatives voted to repeal President Barack Obama’s health-care overhaul as Republicans delivered on campaign promises to reopen debate on the issue and attempt to reshape the law. The measure passed 245-189, with all of the House’s 242 Republicans joined by three Democrats to support overturning the measure signed into law by Obama last March. “Repeal means keeping a promise,” said House Speaker John Boehner in a speech on the House floor. “This is what we said we would do.” The House action officially re-ignited a debate that consumed Congress during much of Obama’s first two years in office and is likely to be a prime topic during the 2012 presidential campaign. “This ain’t repealing nothing,” said Representative Charles Rangel, a New York Democrat, on the House floor. “This is the political theater part of it.” House Majority Leader Eric Cantor, a Virginia Republican, told reporters today that “the American people deserve to see a vote in the Senate.” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said he will push for one. Cantor said the repeal vote will be followed tomorrow by a vote instructing House committees “to begin work to construct an alternative health-care vision” that will be “our so-called replacement bill.” During debate today, Republicans said their plan would include many provisions that Democrats touted in the existing law, including allowing young adults to stay on their parents’ insurance plans up to age 26 and barring insurers from rejecting coverage for people based on pre-existing conditions. Boehner, an Ohio Republican, told reporters that a replacement plan would aim to “bring down the cost of health insurance for the American people and expand access.” As they work on their proposals, Republicans plan to use the House Appropriations Committee to stymie Obama’s overhaul measure, mainly by denying money for implementing some of its provisions. Forty-six percent of Americans think the health care law is likely to cut jobs, 54 percent think it will hurt the economy, and 62 percent see it as increasing the federal deficit, according to a poll conducted Jan. 13-16 by ABC News and the Washington Post. Republicans, who call the law “Obamacare,” contend it will raise taxes, destroy jobs and burden businesses with new requirements such as one that makes them report to the Internal Revenue Service any expenditure over $600. “Let’s stop payment on this check before it can destroy more jobs and put us in a deeper hole,” Boehner said in his floor speech. Representative Michele Bachmann, a Minnesota Republican, termed the overhaul measure “the crown jewel of socialism; it is socialized medicine.” The three Democratic lawmakers voting for repeal were Dan Boren of Oklahoma, Mike McIntyre of North Carolina and Mike Ross of Arkansas.
Fed Creates Diversity, Inclusion Offices at Board, 12 Banks. The Federal Reserve is establishing offices to promote diversity at the central bank’s Washington- based board and 12 regional banks as required by a law overhauling financial regulation enacted last year. The Office of Diversity and Inclusion will also develop standards to assess the practices of entities regulated by the Fed, the central bank said in a statement today. Sheila Clark, who has overseen the Equal Employment Opportunity programs at the Fed board, was named program director.
Health Journals May Force Scientists to Report Hedge Fund Ties to Research. The New England Journal of Medicine and 13 other research publications may force scientists who submit studies to disclose payments from hedge funds in the wake of insider-trading probes involving a drugmaker and technology companies. Editors for the New England Journal, the Journal of the American Medical Association and 12 other periodicals will discuss during their annual meeting in June whether researchers must reveal investment-industry ties, said Karen Buckley, a New England Journal spokeswoman. Existing rules on payments by drugmakers and device companies don’t cover arrangements with investors, Buckley said in a phone interview.
High-Frequency Traders May Accept More Risk, Liquidnet Says. Some high-frequency trading firms will transact blocks of shares away from exchanges as pending regulations restrict some of their activities, according to analyst Vlad Khandros at Liquidnet Holdings Inc. The prediction was 1 of 11 that Khandros, a market- structure and public-policy analyst, sent to some of New York- based Liquidnet’s 630 mutual fund and hedge fund clients today. He also said high-frequency trading, in which firms may transact thousands of times a second, will become an “accepted and defined” category of market participants this year.
Bankrupt Vallejo May Repay Its Creditors as Little as 5% of Claims. The city of Vallejo, California, proposed paying some creditors as little as 5 percent of what they are owed, making it the first general municipality that would fail to fully repay its debts in bankruptcy. General unsecured creditors would collect 5 percent to 20 percent of their claims under the plan of adjustment filed late yesterday in U.S. Bankruptcy Court in Sacramento, the state capital. No city or county has used federal bankruptcy laws to force creditors to take less than they are owed, according to Bruce Bennett, the lead lawyer for Orange County, California, when it filed the biggest municipal bankruptcy in the U.S. in 1994. Vallejo’s plan assumes the city can’t provide essential services, like police and fire protection, while also paying its debts, he said. Should the city succeed, the case “may become an important precedent,” Bennett said in an interview.
Finra's Ketchum Says Brokers Likely to Face Fiduciary Standard. The Financial Industry Regulatory Authority’s top executive said federal regulators are “very likely” to force U.S. brokers to meet stricter requirements for acting in the best interests of their clients. The Securities and Exchange Commission may force brokers who give personalized advice to adopt the fiduciary standard applied to investment advisers, Finra Chief Executive Officer Richard Ketchum said today at a securities law conference in Coronado, California.
Obama Dinner Menu Includes Maine Lobster, Rib Eye and Apple Pie. The guests invited to President Barack Obama’s state dinner in honor of Chinese President Hu Jintao will be served a “quintessentially American” meal, including “old fashioned apple pie with vanilla ice cream,” according to the menu released by the White House. The main course for the third state dinner hosted by the president and Michelle Obama will feature poached Maine lobster, dry aged rib eye with double stuffed potatoes and creamed spinach. Among the 225 invited guests are actor Jackie Chan, Jamie Dimon, chief executive officer of JPMorgan Chase & Co.(JPM), Walt Disney Co.(DIS) CEO Robert Iger and former Presidents Jimmy Carter and Bill Clinton.
Daley Files to Sell $8.3 Million JPMorgan(JPM) Shares After Joining Obama Team. William Daley, President Barack Obama’s new chief of staff, filed a notice with the Securities and Exchange Commission today to sell 186,190 shares of JPMorgan Chase & Co. that he valued at almost $8.3 million. The approximate date of sale was listed in the filing as today and comes as Daley, a former JPMorgan executive, divests his holdings to work at the White House.
Godrej Raises Prices for Third Time in Three Months as Indian Costs Surge. Godrej Consumer Products Ltd., India’s second-largest maker of bath soap, will raise prices for a third time in as many months to offset raw material costs that have climbed 50 percent since April. “We are facing an abnormal scenario in raw material prices,” Managing Director A. Mahendran said in a Jan. 18 interview. Godrej Consumer, controlled by billionaire Adi Godrej, plans to raise prices of soap and hair color by as much as five percent, Mahendran said at its Mumbai headquarters.
Wall Street Journal:
Spain to Ramp Up Bailout of Banks. Spain plans to pour billions more euros into its troubled savings banks and force them to be more open about their lending practices, people familiar with the matter said, an acknowledgment that previous efforts to fix the banks have fallen flat as the country seeks to ward off an international bailout. In a first step, Spain is preparing to issue €3 billion ($4 billion) in debt in coming days, the people familiar with the matter said. Government officials are putting plans in place to eventually raise as much as €30 billion, according to these people, though some say the final tally will be less. The hope is that a series of capital injections will quell investor jitters about the savings banks, known as cajas (literally, "boxes"), which have been a thorn in Spain's side as it seeks to convince investors that the country's finances are stable. The fate of the cajas is inextricably tied to the fate of Spain and potentially to the euro itself. Fear that the savings banks can't raise funds on their own and will need a government bailout was one reason ratings agency Moody's put Spain's rating on review for a downgrade last month.
China's rare-earth exports dropped 9.3% to 39,813 metric tons last year, underscoring the government's tight grip on the specialized metals, citing data from China Customs Statistics Information Center.
Rivals Seek New Balance. Obama, Hu Emphasize Common Ground, Gloss Over Lasting Disputes at Summit. U.S. President Barack Obama and Chinese President Hu Jintao, seeking a steadier footing for the often-troubled U.S.-China relationship, played up the two nations' common interests—and soft-pedaled or ignored longstanding issues that divide them.
Goldman(GS) Profit is Pinched by New Rules. Goldman Sachs Group Inc.'s profit slide of 52% in the fourth quarter showed the securities giant's size and swagger aren't enough for it to escape the tightening squeeze of a regulatory overhaul and jittery clients and investors.
As Food Prices Soar, Eateries Scramble. Soaring global food prices, particularly for meat, sugar and coffee, are putting pressure on the restaurant, travel and hotel sectors as they pursue a fragile recovery. In a bid to offset added costs without passing them on to price-sensitive consumers, many companies are scrambling to renegotiate contracts, find cheaper suppliers and reconfigure menus. Increased demand and market speculation, as well as bad weather like the recent flooding in Australia, have driven up prices for items ranging from coffee beans to beef.
The Union Threat to the Democrats' Future by Douglas E. Schoen. Unless the party confronts its allies in the public-employee unions, it will continue to lose credibility with voters around the country. There is a crisis in state and municipal finance. That much is clear. What hasn't been fully understood is that the fate of the Democratic Party is bound up in the resolution of that crisis.
The Repeal Vote. Democrats are deriding last night's House vote to repeal ObamaCare as "symbolic," and it was, but that is not the same as meaningless. The stunning political reality is that a new entitlement that was supposed to be a landmark of liberal governance has been repudiated by a majority of one chamber of Congress only 10 months after it passed. This sort of thing never happens. More House Members—245 in total—voted to rescind the new entitlement than the 219 Democrats who voted to create it last March. That partisan majority narrowly prevailed over all 178 Republicans and some 38 Democrats. The three Democrats who favored repeal yesterday confirmed the bipartisan opposition to the kind of vast new social program that historically has been built on a national bipartisan consensus.
Seagate(STX) Profit and Sales Fall Sharply; Shares Skid. Seagate Technology reported sharply lower profit on Wednesday as sales of its computer hard drives and storage devices fell and it recorded restructuring costs as it gears up for a massive share buyback after the failure of a private equity takeover deal.
Goldman(GS) CEO Talks Shop With China's President. On the same day Goldman Sachs reported a 53% drop in earnings its CEO Lloyd Blankfein was chatting it up with President Obama and China’s President Hu Jintao.
AutomatedTrader:
Private Equity Warming to For-Profit Colleges; Hurdles Remain. Private-equity firms are showing some renewed interest in operators of for-profit colleges, though deal activity still may not pick up until regulatory clouds begin to clear later this year.
Skyscraper Building Boom Driven By China. China is building 44% of the 50 skyscrapers to be completed worldwide in the next six years, increasing the number of skyscrapers in Chinese cities by over 50%, says Andrew Lawrence, an Asian property analyst at investment bank Barclays Capital.
Reuters:
EBay(EBAY) Outlook Beats Street as Turnaround Bears Fruit. Online marketplace eBay Inc provided investors with a bullish 2011 profit outlook after the holiday quarter showed signs it is delivering a promised turnaround, as improvements in its buyer experience helped boost sales at its marketplaces unit. Its shares rose 2.4 percent after hours.
F5 Networks(FFIV) Weak Q2 Revenue View Drags Down Sector. F5 Networks forecast weak second-quarter revenue, knocking down network equipment stocks on concerns that the market for managing the explosion in Internet traffic may not be growing as fast as expected. Shares of F5 Networks, which has outperformed market expectations for the past seven quarters, plunged 23 percent after the company forecast lower-than-expected revenue for the January-March quarter.
Plexus(PLXS) Warns of Sequential Fall in Q3 Revenue; Shares Down. Plexus Corp warned of sequential decline in third-quarter revenue and a "significant" production delay for its customer Coca-Cola Co, sending the electronics manufacturing services company's shares down 10 percent in after-market trade.
US Trader Hetco Drives Up Oil Price. An American trading group reportedly building up a "huge" physical position in North Sea oil has driven London Brent prices above $98 a barrel. Hetco, which is part-owned by US oil and gas group Hess Corp, was said to have taken control of eight North Sea Forties oil shipments and two Brent cargoes – and it is believed to be in the market for more. The move would give Hetco more influence over the price of oil for immediate delivery.
Brazil Slams Brakes to Curb Inflation, Risking Hot Money Tsunami. Brazil has raised interest rates sharply, following China, India and host of countries across the emerging world in acting to curb inflation and counter the flood of dollar liquidity from the US. Alexandre Tombini, the new head of Brazil’s hawkish central bank, kicked off his tenure by raising the key Selic rate a half point to 11.25pc, despite fears that this will push the over-valued real to extreme levels.
Goldman Sachs £9.6bn pay and bonuses to rouse tensions with City. Goldman Sachs' staff have been handed a compensation pot worth $430,000 (£269,000) per employee in a payout that is likely to once again stir tensions between the City and the rest of the UK.
The Economic Times:
Leaks Force RIM(RIMM) to Break Talks with India. Canada-based Research in Motion , the maker of BlackBerry smartphones, has temporarily suspended its dialogue with the government on security issues saying leakage of sensitive discussions between the company and the Indian authorities had undermined the confidence needed for such talks. Endorsing RIM’s stance, Canada has complained to Home Secretary GK Pillai that confidential information submitted by the smartphone company was being leaked to the media, and a top executive from the cellphone company would visit New Delhi and assess the situation (on the leaks) before talks resume.
China Daily:
China's policies towards protecting intellectual property rights should not be labeled "protectionist" as the country seeks to prevent monopolies on technology by foreign companies, Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce, wrote.
China will continue to diversify its foreign exchange investments from U.S. Treasuries in a bid to control risk, citing Zhang Monan, a researcher with the State Information Center.
Evening Recommendations Citigroup:
Reiterated Buy on (MRO), raised target to $50.
Night Trading
Asian equity indices are -1.25% to -.75% on average.
Asia Ex-Japan Investment Grade CDS Index 111.0 +3.5 basis points.
Asia Pacific Sovereign CDS Index 113.0 +.5 basis point.
Initial Jobless Claims for last week are estimated to fall to 420K versus 445K the prior week.
Continuing Claims are estimated to rise to 3985K versus 3879K prior.
10:00 am EST
Existing Home Sales for December are estimated to rise to 4.87M versus 4.68M in November.
Leading Indicators for December are estimated to rise +.6% versus a +1.1% gain in November.
Philly Fed for January is estimated at 20.8 versus 20.8 in December.
11:00 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -500,000 barrels versus a -2,154,000 barrel decline the prior week. Distillate supplies are expected to rise by +1,000,000 barrels versus a+2,652,000 barrel gain the prior week. Gasoline inventories are expected to rise by +2,500,000 barrels versus a +5,081,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by -.5% versus a -1.6% decline the prior week.
Upcoming Splits
(TEF) 3-for-1
Other Potential Market Movers
The $13 Bln 10-Year TIPS Auction, (SE) analyst meeting and the (WGL) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 83.11 -.19%
European Financial Sector CDS Index 154.35 bps -.79%
Western Europe Sovereign Debt CDS Index 190.0 bps -.78%
Emerging Market CDS Index 202.86 +2.30%
2-Year Swap Spread 23.0 unch.
TED Spread 15.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% +1 bp
Yield Curve 276.0 -1 bp
China Import Iron Ore Spot $182.70/Metric Tonne +.72%
Citi US Economic Surprise Index +47.20 -1.0 point
10-Year TIPS Spread 2.36% -2 bps
Overseas Futures:
Nikkei Futures: Indicating -102 open in Japan
DAX Futures: Indicating -5 open in Germany
Portfolio:
Lower: On losses in my Ag, Tech and Biotech long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades to session lows, despite gains overseas, strong earnings reports from (AAPL)/(IBM) and diminishing eurozone sovereign debt angst. On the positive side, Computer Service, Telecom and Restaurant shares are relatively strong, rising on the day. Lumber is rising +2.02%. The 10-year yield is falling -3 bps to 3.33%. The Italy sovereign cds is falling -3.73% to 197.56 bps, the Spain sovereign cds is declining -5.45% to 282.74 bps, the Belgium sovereign cds is falling -5.75% to 193.37 bps and the US sovereign cds is falling -4.32% to 49.98 bps. The Western Europe Sovereign CDS Index is now -28 bps off its record high set on January 11. Moreover, the US Muni CDS Index is dropping -4.67% to 2134.29 bps. On the negative side, Airline, Education, Gaming, Homebuilding, HMO, Hospital, Biotech, I-Banking, Bank, Networking, Disk Drive, Semi, Internet, Steel, Ag, Oil Service, Alt Energy and Coal shares are under significant pressure, falling more than 2.0%. (XLF)/(IYR) have underperformed throughout the day. Small-cap and Cyclical shares have also underperformed today. Weekly retail sales rose +2.7% this week versus a +2.8% rise the prior week and down from a +3.8% gain during the first week of Dec. The Hungary sovereign cds is rising +1.21% to 364.15 bps and the Emerging Markets Sovereign CDS Index is gaining another +.68% to 188.44 bps. Rough Rice futures have surged +9% in five days. China's 7-day Repo Rate is jumping +131 bps today to 4.05% on tightening concerns. This is the first decline for US stocks in awhile on a day with mostly positive news, which could indicate a change of character for the market. Losses are worse than the major averages suggest. January option expiration is on Friday and the DJIA has declined 10 of the last 12 with big losses seen in 2003, 2006 and 2010. I expect US stocks to trade modestly lower into the close from current levels on China inflation fears, profit-taking, technical selling and more shorting.
