North American Investment Grade CDS Index 83.74 +.86%
European Financial Sector CDS Index 115.75 +.12%
Western Europe Sovereign Debt CDS Index 172.83 bps -.48%
Emerging Market CDS Index 221.89 -1.17%
2-Year Swap Spread 20.0 unch.
TED Spread 19.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .12% -1 bp
Yield Curve 279.0 +4 bps
China Import Iron Ore Spot $178.0/Metric Tonne -1.17%
Citi US Economic Surprise Index +83.60 +6.3 points
10-Year TIPS Spread 2.47% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +63 open in Japan
DAX Futures: Indicating +11 open in Germany
Portfolio:
Slightly Higher: On gains in my Technology and Biotech longs
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs, despite rising energy prices, growing Mideast unrest, higher long-term rates and emerging markets inflation fears. On the positive side, Road&Rail, Homebuilding, HMO, Construction, Hospital, Networking, Semi and Coal shares are especially strong, rising more than 1.5%. Small-cap and Cyclical shares are outperforming. On the negative side, Airline, Restaurant, REIT, Insurance, Bank, Wireless and Utility shares are lower on the day. (XLF)/(IYR) are a bit heavy. The 10-year yield is rising +6 bps to 3.45%. China Iron Ore Spot is falling another -1.1% and is down -7.2% in about 2 weeks. The US Scrap Steel Benchmark has fallen about -5% in 2 days, which is the largest 2-day decline since Oct. of last year. The UBS-Bloomberg Ag Spot Index is rising +1.35% and is back near its record high. Moreover, copper is falling -.39%, lumber is dropping -1.33% and oil is surging +2.0%. The Saudi sovereign cds is rising +2.55% to 142.33 bps. The avg. US price for a gallon of gas is up another .02/gallon today to $3.39/gallon. It is now up .27/gallon in 15 days. The US dollar is trading poorly today given the data and Fed commentary. I suspect this weakness may reverse after the ECB meeting tomorrow. However, more dollar weakness would be another boost to oil. Investor complacency regarding the deteriorating situation in the Mideast remains high. The market's resiliency is impressive nonetheless. This could be a result of investors' anticipating a likely better-than-expected February jobs report on Fri. I would like to see better breadth, higher volume and a meaningful reversal lower in oil before shifting exposure in anticipation of further equity gains. As of now, this move looks like a bounce with further stock weakness likely before week's end. I expect US stocks to trade mixed-to-lower into the close from current levels on higher energy prices, growing Mideast unrest, more shorting, emerging markets inflation fears, higher long-term rates and profit-taking.
Dubai Stocks Slump to 7-Year Low. Middle East shares fell, sending Dubai’s benchmark index to the lowest in almost seven years, as concern political unrest may spread to Saudi Arabia, the Arab world’s largest economy, sparked demand for safer assets. Saudi Arabia’s Tadawul All Share Index slumped 3.9 percent to close at the lowest since April 2009 at 3:30 p.m in Riyadh. The DFM General Index declined 3.5 percent to 1,374.43, the lowest level since June 2004. The gauge has lost 15 percent since Tunisia’s Zine El Abidine Ben Ali was ousted in January. Emaar Properties PJSC retreated to the lowest since 2009 and Dubai Financial Market PJSC slumped 4.9 percent. Investors are shunning assets in the Middle East and North Africa as the political turmoil, which started in Tunisia more than two months ago, expanded to Oman, Bahrain, Yemen, Libya and Iran. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and March 20, Human Rights Watch said in a statement on its website on Feb. 28. “A lot of the selling has been from onshore, local and regional investors; the speed of the decline tells you it’s pure panic,” said Dubai-based Ibrahim Masood, who helps manage about $400 million at Mashreqbank PSC. Saudi Arabia’s benchmark stock index plunged the most in more than two years yesterday on concern disturbances may extend to the kingdom, the biggest supplier in the Organization of Petroleum Exporting Countries. The measure has tumbled 20 percent in the past 13 days, the longest losing streak since 1996. About 271 million shares changed hands, the most since May, according to data compiled by Bloomberg. Saudi nationals accounted for about 80 percent of stock purchases in February, according to the exchange’s website. “There are fears political risk may spread,” to Saudi Arabia, said Mohammed Ali Yasin, chief investment officer at Abu Dhabi-based financial services company CAPM Investments PJSC. Credit-default swaps on Saudi Arabia are the worst performing sovereign contracts this year, even though the kingdom has no debt to insure. Swaps almost doubled in two months to a more than 19-month high of 143 basis points from 75 at the start of 2011, according to CMA. The Bloomberg GCC 200 Index of Persian Gulf stocks dropped 3.3 percent today, bringing declines this year to 15 percent.
Oil Extends Gains After Unexpected Decline in U.S. Inventories. Crude oil in New York rose above $100 a barrel for a second day and gasoline surged to a 30-month high on concern that the unrest curbing exports from Libya will spread to other countries in the region. Oil futures advanced as much as 2.8 percent as Libyan forces loyal to Muammar Qaddafi attacked rebels on the east coast where much of the country’s oil is refined and shipped abroad. Prices extended gains after a U.S. Energy Department report showed that crude and fuel supplies fell last week. Crude oil for April delivery climbed $2.08, or 2.1 percent, to $101.71 a barrel at 12:06 p.m. on the New York Mercantile Exchange. Yesterday, the contract surged 2.7 percent to $99.63, the highest settlement since September 2008. Prices are up 28 percent from a year ago.
Gasoline Surges to 30-Month High as Mideast Tensions Escalate. Gasoline surged above $3 a gallon as spreading political unrest in North Africa and the Middle East threatened crude oil supplies for refiners. Gasoline rose to a 30-month high as Libyan forces loyal to Muammar Qaddafi counterattacked against rebels who have seized the east coast ports where much of the country’s oil is refined or shipped abroad. “Everything is escalating in Libya, it looks like Qaddafi is gaining ground and the market is a little bit edgy,” said Dan Flynn, an energy analyst at PFGBest in Chicago. “Everything could explode today.” Gasoline for April delivery rose 2.06 cents, or 0.7 percent, to $3.004 a gallon at 9:27 a.m. on the New York Mercantile Exchange. Prices touched $3.0215, the highest level for the contract closest to expiration since Aug. 29, 2008. Regular gasoline at the pump, averaged nationwide, advanced 1.2 cents to $3.387 a gallon yesterday, AAA said on its website.
China's Founder of High-Speed Railways Under Investigation. China’s Ministry of Railways removed Zhang Shuguang as deputy chief engineer and is investigating him for alleged “severe violation of discipline,” Xinhua News Agency said, in the second probe of an official from the ministry in a week. Zhang, 54, is known as the founder of China’s high-speed railway technology and an ally of former railway minister Liu Zhijun, Caixin Online reported yesterday. He was being investigated by the Communist Party of China Central Commission for Discipline Inspection, Xinhua said.
General Motors(GM) is in talks with Turkish authorities to build a plant in western Kocaeli province to make Chevrolet cars, citing Kocaeli chamber of industry head Ayhan Zeytinoglu.
U.S. Companies Added More-Than-Estimated 217,000 Jobs Last Month, ADP Says. Companies in the U.S. added more workers in February than forecast, indicating the labor market may be strengthening, data from a private report based on payrolls showed today. Employment increased by 217,000 last month after a revised 189,000 gain in January, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 180,000 gain last month.
Hedge Funds, Brokers May Face Fresh Calls for Risk Data. Hedge funds, broker-dealers and mortgage companies may face unprecedented demands for data on everything from risk exposure to trading partners as U.S. regulators seek to identify firms that pose a potential threat to the financial system, a confidential government report says. The staff of the Financial Stability Oversight Council identified dozens of “potential metrics” to decide which non- bank financial firms should be designated “systemically important” and subject to Federal Reserve supervision, according to an 80-page study obtained by Bloomberg News.
Bridgewater Made $8.7 Billion in 2010 Second Half, Survey Finds. Ray Dalio’s Bridgewater Associates Inc. made $8.7 billion for investors during the second half of 2010, the largest profit posted during the period by any of the world’s 10 biggest hedge-fund managers, according to LCH Investments NV. Bridgewater, based in Westport, Connecticut, has earned $22 billion for investors since its inception in 1975, with more than one-third of the profits generated last year, according to the analysis by LCH, a firm overseen by the Edmond de Rothschild Group, which invests in hedge funds.
El-Erian Says Pimco Won't Buy EU Peripheral Bonds Until Debt Restructuring. Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said his funds won’t buy bonds from Greece, Portugal or Ireland until the countries undertake debt restructuring. “We would rather stay on the sidelines until these countries are both willing and able to confront their problems and at that stage, we will consider buying their bonds,” El- Erian told Andrea Catherwood in Bloomberg Television’s “The Last Word” program. El-Erian said he would need to see “an orderly, pre- emptive and voluntary restructuring of the debt, something that we’ve seen in other countries like Uruguay. ‘‘The second condition is a set of structural reforms that allow these economies to grow over time,’’ he said.
Cotton Futures Top $2 a Pound as Limited Worldwide Supplies Trail Demand. Cotton prices rose, extending a rally above $2 a pound, on signs that global supplies will remain limited this year amid increased demand from China, the world’s biggest consumer. Imports by China in January jumped 31 percent from a year earlier after an 86 percent surge in 2010, government data show. The price in New York more than doubled in the past 12 months, reaching a record of $2.0893 on Feb. 18. The fiber jumped by the exchange limit on ICE Futures U.S. for the fourth straight day after dropping by the maximum in the previous four sessions. Cotton for May delivery rose by the limit of 7 cents, or 3.6 percent, to $2.006 at 12:29 p.m. on ICE in New York. The price has jumped 13 percent since Feb. 24.
Wall Street Journal:
Rebels Seek Airstrikes by Foreign Forces. Forces loyal to Libyan leader Col. Moammar Gadhafi pushed an offensive into the east, but were resisted by antiregime forces, as Col. Gadhafi warned against a foreign military intervention and rebels called on outside powers to launch tactical airstrikes. Forces loyal to Libyan leader Col. Moammar Gadhafi pushed an offensive into the east Wednesday, but were resisted by antiregime forces, as Col. Gadhafi warned the U.S. and Europe against a military intervention, saying, "we will fight until the last man and woman." U.S. Defense Secretary Robert Gates, testifying before Congress, criticized "loose talk" about any military intervention in Libya. He also said the U.S. military would have to launch pre-emptive strikes to destroy Libya's air defenses, should President Barack Obama order the imposition of a no-fly zone over the North African country, "Let's just call a spade a spade," Mr. Gates said. "A no-fly zone begins with an attack on Libya."
Muni Default Estimate: $100 Billion. A consulting firm founded by economist Nouriel Roubini said there could be close to $100 billion of municipal-bond defaults over the next five years as state and local government-debt problems damp the U.S. economic recovery. That figure would by most estimates represent a significant increase over defaults in recent history, but it doesn't appear to be as dire as a prediction last year by analyst Meredith Whitney
Bloomberg Businessweek:
Fed's Treasury Purchases 'Monetizing Debt,' Hoenig Says. Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank is “monetizing debt” with its purchases of U.S. Treasuries, a program that he says may spur inflation. “Yes, we are monetizing debt,” Hoenig said today in a speech in New York. “You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time.” Philadelphia Fed President Charles Plosser, Richmond Fed President Jeffrey Lacker and St. Louis’s James Bullard have urged a review of the purchases in light of a strengthening economy and concern over future inflation. The central bank should raise the target federal funds rate to 1 percent from near zero rather than ease during the current economic recovery, Hoenig said, reiterating comments from last year. “You really need to get off of zero, in my opinion,” Hoenig said. “I would think of moving back to 1 percent, and then I would pause. Let the market settle out” and then move to a higher rate, possibly 2 percent. The Kansas City Fed leader also urged breaking up the largest banks, which he said have a lower cost of funds because of an implied government safety net. He would restore the barrier between commercial and investment banking. “I think this is a good idea as they are so large they cannot be allowed to fail,” Hoenig said. Hoenig also said standards for bank capital need to be raised further, and the Basel Committee on Banking Supervision’s overhaul of standards may not go far enough in reducing leverage.
MarketWatch:
IATA Cuts Airlines' 2011 Profit Forecast.The International Air Transport Association, the global trade organization for airlines, cut its 2011 industry profit forecast Wednesday to $8.6 billion from $9.1 billion, citing the recent spike in jet-fuel prices. Driving the downgrade were Asia-Pacific and Latin American carriers, which are more exposed to the higher fuel costs, the group said. The profit outlook for North American carriers was unchanged.
CNBC.com:
Apple's(AAPL) Jobs Takes Stage at Apple iPad 2 Launch. Apple CEO Steve Jobs briefly emerged from his medical leave and walked on stage to standing ovation Wednesday to unveil the second-generation of the popular iPad, which will go on sale March 11 in the United States.
Economy Expands Throughout US: Fed's Beige Book. U.S. economic activity kept slowly gaining strength as 2011 opened and manufacturers and retailers were having some success in pushing their prices up, the Federal Reserve said on Wednesday.
Gates: Libyan No-Fly Zone Would Require Attack. Defense Secretary Robert Gates is sharpening his words of caution about providing air cover for Libyan rebels, telling a U.S. congressional committee that establishing a no-fly zone would have to begin with an attack on Libyan territory. Such an attack would be designed to destroy the North African country's air defense weapons.
San Francisco Chronicle:
Nearly 500 in S.F. Schools to Get Pink Slips. Nearly 500 San Francisco teachers, aides and administrators will find pink slips in their mailboxes within the next two weeks as the school board works to backfill an estimated $27 million shortfall if the state's worst-case budget scenario pans out later this year.
MSNBC:
U.S. Service Member Shot Dead in Germany. A gunman fired shots at U.S. military personnel on a bus outside Frankfurt airport on Wednesday, killing two people and wounding two others before being taken into custody, police said. U.S. military officials told NBC News that one of the dead was a U.S. service member. The other fatality was the bus driver, police said. Kosovo's interior minister told The Associated Press that German police have identified the gunman as a Kosovo citizen. Kosovo Interior Minister Bajram Rexhepi said in an interview that German police have identified the suspect Arif Uka, a Kosovo citizen from the northern town of Mitrovica.
American Journalism Review:
The Bloomberg Juggernaut. While many news organizations are struggling and retreating, Bloomberg News keeps adding talented journalists, expanding its empire and elevating its ambitions.
Reuters:
NYC Police Pension Fund OKs Hedge Fund Stake.The board of New York City's police pension fund has approved the first investment in a hedge fund by any of the city's pension funds, the city comptroller said on Wednesday.
Record Oil Futures Trading Volumes in February. Traded volumes on the world's two biggest oil futures markets reached record levels in February, boosted by growth of close to 40 percent in futures and options trade on benchmark Brent and WTI contracts. Intercontinental Exchange (ICE) said the average daily trading volume for its futures markets rose 27 percent from the same month a year before to a record 1.74 million contracts. The total futures volume for the month was a record 33 million contracts. Volume in energy futures traded on markets run by the CME Group CME.N, including the New York Mercantile Exchange (NYMEX), averaged 2.2 million contracts a day, up 26 percent from February 2010, CME said. The driving force behind this strong growth was the trade in futures on the NYMEX light, sweet crude oil contract CLc1 known as West Texas Intermediate or WTI, which rose 39 percent to an average daily volume of 935,000 contracts. The options contract rose 35 percent for the month and set its third daily volume record of the year with 325,000 contracts on Feb. 23 surpassing the previous record of 294,000 contracts set at the end of January.
Asia will import 200,000 to 300,000 metric tons of naphtha from western markets in April compared with 400,000 tons to 500,000 tons expected to arrive this month, citing traders.
Bangkok Post:
Burma Halts Rice Exports. Burma has halted rice exports to stockpile the staple, aiming to shield food costs at home from the possible impact of rising oil prices caused by Middle East unrest, an official said Wednesday. "I think the authorities are just concerned about local consumption because of what has happened in Libya,'' an official of the Union of Burma Federation of Chambers of Commerce and Industry told AFP on condition of anonymity. He explained that an increase in oil prices might push up transportation costs and subsequently food prices. "All commodity prices depend on transportation charges, not only rice,'' he added. Firms were told last week to suspend shipments of rice and cancel all contracts for overseas supply, he said.
China National Radio:
Some Chinese provinces including Shandong, Shanghai and Guangdong may raise minimum wages by as much as 25%, citing local provincial authorities.
CCTV:
China will offer subsidies to low-income individuals when inflation rises to a "certain level," citing Zhou Wangjun, deputy director of the pricing department at the National Development and Reform Commission.
Libya Rebels Dig in After Qaddafi Attacks as UN Rebukes Regime. Libyan rebels dug in for battle after repulsing attacks by forces loyal to Muammar Qaddafi that fueled talk of a civil war, as the full membership of the United Nations rebuked the regime. Rebels in Zawiyah, a rebel outpost 28 miles (45 kilometers) west of Tripoli, the capital, held their ground yesterday at the entrances to the city, Ibrahim al-Hajj, a 58-year-old resident, said by telephone. Many were armed with machine guns and rocket- propelled grenades taken from Libyan military depots, said Belgassem al-Zawee, a 50-year-old protester in the city. Forces loyal to Qaddafi had taken control of Libya’s western border with Tunisia Feb. 28 before attacking and failing to recapture Zawiyah. They also attacked Misratah, a city 115 miles east of the capital, according to the Associated Press. “Libya is essentially split into two, an eastern and a western part,” Mohammed Dangor, South Africa’s ambassador to Libya, who left Tripoli on Feb. 27, told reporters in Cape Town. “This is moving toward civil war, that’s the danger.”
Crude Oil Rises a Second Day, Exceeds $100 in New York on Supply Concerns. Oil advanced for a second day in New York, exceeding $100 a barrel amid speculation turmoil in the Middle East may spread from Libya to Iran, the second-largest producer in the Organization of Petroleum Exporting Countries. Futures rose to the highest since September 2008 yesterday as Libyan rebels braced for renewed clashes with forces loyal to leader Muammar Qaddafi. Saudi Arabia’s benchmark stock index plunged the most since November 2008 on concern regional unrest may extend to the kingdom. Iranian protesters clashed with security forces in Tehran, Al Arabiya television reported. “The unrest is threatening to spread to Iran, OPEC’s second-largest producer,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today. “Given the speed at which events are unfolding, we do not rule out a further spike of $10 a barrel or beyond in the coming weeks.” Oil for April delivery gained as much as $1.01, or 1 percent, to $100.64 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $100.30 at 11:26 a.m. Sydney time. Political turmoil has spread to Saudi Arabia’s neighbors, with protests erupting in Oman and Bahrain. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and 20, according to Human Rights Watch.
Raw-Sugar Deliveries for March Futures in N.Y. Surge to JPMorgan(JPM). Almost 1 million metric tons of raw sugar was delivered to JPMorgan Chase & Co. to settle the expiring futures contract in New York, the most for the commodity since 2009, exchange data show. JPMorgan Futures, a unit of the second-largest U.S. bank by assets, took delivery on 18,748 sugar contracts, or the equivalent of 952,398 tons, ICE Futures U.S. said today in a report on its website. That’s 9.2 percent of what the government expects the U.S. to use this year. Prices have rallied 75 percent in the past 11 months.
Short sellers are increasing bets against emerging market stocks at the fastest pace in four years after wagers on a tumble in U.S. stocks backfired. Short interest in the iShares MSCI Emerging Markets Index ETF(EEM) jumped to 21% of shares outstanding as of Feb. 15, from 11% two weeks earlier, according to NYSE data compiled by Bloomberg. While the S&P 500 has climbed 3.9% this year and reached a 32-month high on Feb. 18 amid evidence the U.S. economy is strengthening, the emerging market index retreated 3.5% as surging inflation prompted countries including China and Brazil to raise interest rates.
CFTC Warned Algorithm Rules 'Virtually Impossible' to Enforce. It would be “virtually impossible” for the U.S. Commodity Futures Trading Commission to enforce rules governing how traders use algorithms before they complete transactions, an advisory subcommittee told the agency. “The only way to independently enforce any sort of specific regulations on quality assurance for trading firms would be to have a virtual army of CFTC employed quality assurance professionals who have complete access to all trading firms’ intellectual property,” the CFTC Technology Advisory Committee’s pre-trade functionality unit said in a report. Exchanges should require trading firms to have measures in place that can disable algorithms, including a “kill button” that could simultaneously cancel all existing orders and prevent a firm from placing new orders, said the group, which met in Washington today.
Saudi King's $15 Billion Housing Grant Won't Eliminate Shortage. Saudi King Abdullah’s pledge to increase spending on housing by 55 billion riyals ($15 billion) probably will do little to relieve the country’s home shortage unless it’s coupled with long-delayed changes in mortgage financing laws. “This is largely symbolic,” said Jarmo Kotilaine, chief economist at National Commercial Bank, Saudi Arabia’s largest lender by assets. “We have a significant structural issue that can never be solved through government spending alone.” Saudi Arabia, the world’s largest oil exporter, needs 2 million homes by 2014 to keep up with the demands of a population that quadrupled over 40 years, Credit Suisse Group AG estimates.
San Francisco Fed Names Researcher John Williams President. John C. Williams, research director for the Federal Reserve Bank of San Francisco, was named as the bank’s new president to succeed Janet Yellen, who became the Fed board’s vice chairman in October.
JPMorgan's(JPM) Commercial-Mortgage Bonds Set to Sell as Spreads Widen in U.S. JPMorgan Chase & Co. sold a $1.5 billion commercial-mortgage bond as Middle East turmoil slows a three-month rally for the debt. Top-rated securities tied to skyscraper, shopping mall and hotel loans are yielding 1.95 percentage points more than Treasuries, up from a spread of 1.88 percentage points on Feb. 18, the lowest level in at least three years, according to a Barclays Plc index.
Highbridge Said to Shut Asia Fund After Huttenlocher Resigned. Highbridge Capital Management LLC, the hedge-fund firm owned by JPMorgan Chase & Co., is liquidating its $1.4 billion Asia Opportunities Fund after manager Carl Huttenlocher resigned, according to two people with knowledge of the matter.
China's aluminum market will continue to be oversupplied in the next few years as production capacity grows in the west and demand drops, said Hu Changping, director of the aluminum department at the China Nonferrous Metals Industry Association. "The expansion will continue, as some market players will try to grab a bigger market share with low-cost products," HU said. Still, "huge unrecorded commercial stocks at home and abroad and increasing recycling will curb an increase in demand."
Copper, Corn May Drop on Mideast Unrest as Gold Jumps, UBS Says. Copper, corn and rubber may tumble in the next six months, while gold climbs to a record $1,500 an ounce as turmoil in the Middle East boosts oil, fuels inflation and weakens Chinese raw-material demand, according to UBS AG. “There’s more potential for a correction in most of the commodities,” Peter Hickson, global commodities strategist at Switzerland’s largest bank, said by phone yesterday. “There’s a risk. And the risk is driven by concerns over inflation, rising oil prices and uncertainty the Middle East represents.” “There’s a fear that China confidence has been damaged by rising oil prices and the uncertainty,” said Hickson, who joined UBS in 1996 and moved to Hong Kong from London in January. Chinese demand for commodities may be waning, hurt by the civil uprisings in the Middle East and accelerating inflation, Hickson said. China is the world’s largest metals user. “We’re seeing inventories rising in steel, iron ore and coal prices in China haven’t shown a lot of life,” he said.
Wall Street Journal:
Libya Rebels March West as Fronts Firm. Gadhafi Opponents Are Seen Moving Out of Benghazi; Pentagon Orders Two Warships to Mediterranean. A ragtag army of opponents to Col. Moammar Gadhafi began moving west toward Tripoli from the east and the U.S. ordered two warships to the Mediterranean Sea, as the prospect of an extended war loomed over Libya.
Actually, AOL's(AOL) Mark Ellis Is Headed to Yahoo(YHOO). As AOL CEO Tim Armstrong works to integrate his $315 million purchase of the Huffington Post into the Internet portal, one of its top advertising leaders is departing for a big job at Yahoo.
Amazon.com(AMZN) Threatens to Sever Affiliate Ties in California. Ramping up its battle against Internet sales taxes, Amazon.com Inc. (AMZN) has warned it will sever ties with thousands of California-based advertising affiliates if the state government passes legislation requiring the ecommerce giant to collect taxes on items sold to residents.
Fed, FTC Call for Lenders to Share Credit Scores. Free credit scores could be easier to obtain under a rule U.S. federal regulators proposed Tuesday. Starting in July, lenders would be required to disclose credit scores to consumers when the scores are used to set certain credit terms. The Federal Reserve and Federal Trade Commission proposed the rules to comply with a provision included in the sweeping Dodd-Frank financial overhaul Congress passed last summer. Lenders frequently review credit reports to determine a loan applicant's creditworthiness. Low credit scores and negative information on credit reports can leave a consumer paying higher interest rates. Under the proposal, a lender would be required to provide free credit scores to borrowers when the lender uses a credit report to set high interest rates or other loan terms that aren't the best available. Lenders would also need to provide credit scores when they deny credit, change the terms of an existing credit arrangement or refuse to grant credit in the amount or on the terms requested. John Ulzheimer, president of consumer education for SmartCredit.com, said the new regulations would be "hugely empowering" for consumers. This means that "any financial-services product you apply for where you're denied or adversely approved based on a score, you're going to get the score, which is historical," he said.
States Fumble Revenue Forecasts. Many of the budget deficits that blindsided states—and sparked emergency tax increases and spending cuts—stem in part from the states' unduly rosy revenue forecasts, a new study said.
States Make Play for Web Gambling. Efforts to legalize online gambling in the U.S. are moving to the states as lawmakers roll the dice on bills that aim to steer around federal laws effectively prohibiting Internet wagering. The first real test of the state efforts comes this week in New Jersey, where Gov. Chris Christie is expected to decide the fate of a bill that would let Atlantic City casino companies run gambling websites for state residents.
Fed Chief Discusses Exit From Stimulus. Federal Reserve Chairman Ben Bernanke, after spending much of the past six months formulating and then defending a new central-bank effort to stimulate the economy, is turning his eyes toward an eventual exit from the program. Mr. Bernanke faced repeated questions from Republicans and Democrats Tuesday on Capitol Hill about when he would begin to pull back the flood of money the Fed has pumped into the economy in recent months. While not indicating any timetable, he did answer lawmakers' concerns by spelling out in more detail than previously what would get him to take his foot off the accelerator. "Once we see the economy is in a self-sustaining recovery and employment is beginning to improve and labor markets are improving, and meanwhile that inflation is stable, approaching roughly 2% or so," Mr. Bernanke said at a Senate Banking Committee hearing, "at that point we'll need to begin withdrawing."
Bloomberg Businessweek:
Railway Yield Gap at Six-Month High as Debt Mounts: China Credit. China’s state-owned railroad is increasing debt sales by 50 percent, driving yield premiums on its bonds to the highest levels in more than six months, as the world’s biggest high-speed network is rolled out. The yield on the railway ministry’s 3.88 percent September 2020 bonds exceeded the rate for similar-maturity government notes by 115 basis points yesterday, almost double the 59-point gap when the security began trading in September, according to Chinabond prices. “A lot of investors believe the ministry’s debt is too much,” said Fan Wei, a Beijing-based senior vice president of fixed income at Hong Yuan Securities Co., a unit of the nation’s sovereign wealth fund. Spending on China’s railways totaled 1.42 trillion yuan over the last two years, 33 percent more than was invested in the previous five, and the government predicts a further 700 billion yuan will be used to fund construction in 2011. Investors looking into the history of rail expansion have reason to be concerned about China’s growth, which will result in the nation having almost as much high-speed track by the end of next year as the entire rest of the world. Railroads led a collapse in the U.S. corporate bond market in the late 1800s after a flood of defaults on debt sold to extend networks into the American West. China replaced Minister of Railways Liu Zhijun after the ruling Communist Party said he was under investigation for “severe” disciplinary violations, the official Xinhua News Agency reported Feb. 25. The “blind pursuit” of high-speed rail is “highly likely to develop into a debt crisis,” wrote Zhao Jian, a professor of economics at Beijing Jiaotong University, in an April 2010 commentary in the China Daily newspaper. The Beijing-based railway ministry has sold the equivalent of $339 billion of debt since January 1997, according to data compiled by Bloomberg. Indian Railway Finance Corp. raised $11.4 billion-equivalent since March 1996, while Russian Railways has sold $10.6 billion since December 2004, the data show. Five-year credit default swaps on Chinese government debt are 7.5 basis points higher this year on concern three interest rate rises in four months may threaten economic growth.
Business Insider:
A Super Quick and Dirty Overview of the Saudi Economy. All you might know about Saudi Arabia is that it's swimming in oil, and that it's got a hardline Islamic regime that's been allied with the US. In light of the crash in the Tadawul All Shares index, let's just do a quick and dirty look at the Saudi economy courtesy of a recent BofA/ML rreport.
Terrified China Warns Hong Kong Media About Covering The "Jasmine Revolution". China was strongly condemned after multiple reports this past weekend about mistreatment of journalists covering the budding protest movement in the country. Beijing continues to express its fear, as it now lashes out at the Hong Kong press, threatening any media org that covers the revolution:
Hedge Fund Case Takes Aim at Side Pockets. The Securities and Exchange Commission on Tuesday charged a Bay Area hedge fund manager with “concealing” more than $12 million of investors’ money — a case that casts a harsh spotlight on the controversial accounts known as side pockets.
Forbes:
How ObamaCare Is Putting Medical Innovation In The Hospital. How will we know if ObamaCare is successful? One way is if it keeps the country from driving off a fiscal cliff. Supporters of the law think it will, critics think it won’t; time will tell. Another way to judge ObamaCare’s success or failure is its effect on medical care innovation. Odds are rising it will be deadly to innovation. Here’s why.
Platts:
US Energy Head Chu Says Libya Unrest Not Enough to Tap Oil Reserve Yet. US Energy Secretary Steven Chu on Tuesday reiterated President Barack Obama's stance that the US has no plans to tap the Strategic Petroleum Reserve despite unrest in Libya and the Middle East causing oil prices to rise. "The strategic reserve is there for a serious disruption of supply," Chu said on the sidelines of the US Department of Energy's Energy Innovation Summit. "As the president has pointed out, the events in Libya are a very small disruption, and so far it's manageable." Chu said the administration continues to monitor oil prices and will act if necessary. He noted that the reserve has only been tapped twice before. "It's an emergency fund," he said. "We want to keep it that way."
Reuters:
Two U.S. Amphibious Assault Ships Head to Med Via Suez.Two U.S. amphibious assault ships, the USS Kearsarge, which can carry 2,000 Marines, and the USS Ponce, will pass through Egypt's Suez Canal on Wednesday morning, an Egyptian official said on Tuesday. The United States said on Monday it was moving ships and planes closer to Libya, where a rebellion against Muammar Gaddafi's rule is underway.
Hedge Funds Took in Nearly $11 Billion in January. Investors poured nearly $11 billion into hedge funds in January, according to a new report which suggests that investors are ready to take fresh risks on these loosely regulated portfolios. Total hedge fund assets stood at $2.5 trillion at the end of January, marking a $17.7 billion in increase from the end of December, HedgeFund.net said on Tuesday. "Performance accounted for a small part of the increase and net investor flows were positive and significantly above January 2010," the group wrote in its monthly report. The group said performance accounted for a $6.8 billion gain while net inflows accounted for $10.9 billion.
Sina(SINA) Q1 Revenue Forecast is Tepid, Shares Fall. Sina Corp , China's largest Internet portal, forecast first-quarter revenue largely below estimates after posting quarterly earnings that exceeded expectations, and its shares fell sharply. Sina reported a fourth-quarter net loss of $100 million, or $1.51 a share. Mobile-related revenue dropped 26 percent to about $21 million.
Weatherford(WFT) to Adjust 2007-10 Results by $500 Million. Oilfield services company Weatherford Ltd is adjusting its results for the past four years by a total of about $500 million because of a "material weakness" in its income tax reporting. Weatherford shares, which fell 2.7 percent in regular trading, fell another 2.8 percent to $22.87 after-hours on the New York Stock Exchange, as the company also spelled out the risks from Libya to its $236 million tied to the country.
Cal Dive Sees Slow Recovery in US Gulf Activity. Oilfield services provider Cal Dive International said it expects activity levels in the U.S. Gulf of Mexico to recover slowly in 2011 as the issuance of permits in the region has not picked up since last year's oil spill. The permitting process in the U.S. Gulf has slowed down since the Macondo blowout triggered the massive oil spill in April last year, which led to stringent regulations in permits being handed out.
Watchdog Takes Last Jab at US Housing Rescue Effort. The U.S. Treasury's outgoing bailout watchdog took his last shot at the Obama administration's program to keep Americans in their homes and questioned whether taxpayer funds should continue to be used for an ill-conceived housing plan. There is "near universal agreement that the program failed to meet its goals" and the current debate centers "mostly on whether the program should be terminated, replaced or revamped," said Neil Barofsky, the top government auditor for the $700 billion bank bailout fund, in prepared remarks to Congress.
Jump in World Factory Costs Raises Inflation Risk. Factory input costs rose across the globe in February, the latest sign of brewing inflation pressures, as manufacturing in the United States and the euro zone grew at the fastest pace in years.
Financial Times:
Top 10 Hedge Funds Make $28 Billion. The top 10 hedge funds made $28bn for clients in the second half of last year, $2bn more than the net profits of Goldman Sachs, JPMorgan, Citigroup, Morgan Stanley, Barclays and HSBC combined, according to new data.Even the biggest of the hedge funds have only a few hundred employees, while the six banks employ 1m between them.
Alarm Over Plans for Libya No-Fly Zone. US and British moves to consider military action against Muammer Gaddafi in Libya triggered international alarm on Tuesday, with Turkey and Russia opposing the idea and France and Germany expressing deep unease.
Nong Thon Ngay Nay:
Vietnam's economic growth will be de-emphasized this year as the country puts curbing inflation and stabilizing the economy as its top priorities, citing Finance Minister Vu Van Ninh. Ninh placed economic growth in fourth place among Vietnam's national objectives.
Shanghai Securities News:
China's management of inflation expectations cannot only rely on mopping up excess liquidity, Wang Yong, a professor at the training school of the People's Bank of China, wrote in a commentary. The People's Bank of China still faces difficulty in managing liquidity, he wrote, citing the impact of quantitative easing in the U.S., turbulence in the Middle East, rising global agricultural commodity prices and drought in China. The task of managing inflation expectations remains "grim," Wang said.
Evening Recommendations Citigroup:
Reiterated Buy on (CBE), target $74.
Night Trading
Asian equity indices are -2.0% to -.50% on average.
Asia Ex-Japan Investment Grade CDS Index 110.0 +1.5 basis points.
Asia Pacific Sovereign CDS Index 119.25 -2.25 basis points.
ADP Employment Change for February is estimated to fall to 180K versus 187K in January.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory build of 750,000 barrels versus a +822,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,500,000 barrels versus a -1,333,000 barrel decline the prior week. Gasoline inventories are expected to fall by -350,000 barrels versus a -2,798,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a -1.8% decline the prior week.
2:00 pm EST
Fed's Beige Book
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Bernanke speaking, Fed's Hoenig speaking, Challenger Job Cuts for February, weekly MBA Mortgage Applications report, RBC Healthcare Conference, (IR) investor meeting, (AEIS) analyst meeting and the (TAP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and real estate 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 83.03 +1.79%
European Financial Sector CDS Index 115.33 -3.28%
Western Europe Sovereign Debt CDS Index 173.67 bps -.86%
Emerging Market CDS Index 223.31 +1.51%
2-Year Swap Spread 20.0 +1 bp
TED Spread 18.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 275.0 +2 bps
China Import Iron Ore Spot $180.10/Metric Tonne -1.48%
Citi US Economic Surprise Index +77.30 +2.8 points
10-Year TIPS Spread 2.43% +3 bps
Overseas Futures:
Nikkei Futures: Indicating -154 open in Japan
DAX Futures: Indicating -41 open in Germany
Portfolio:
Lower: On losses in my Technology and Medical longs
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 very bearish as the S&P 500 trades near session lows, despite positive economic data, less eurozone debt angst, gains in Asian equities overnight and earnings optimism. On the positive side, Drug shares are outperforming, falling less than .5%. The 10-year yield is falling -2 bps to 3.40%. The Belgium sovereign cds is falling -2.3% to 169.67 bps. The Israel sovereign cds is falling -2.88% to 166.18 bps, which is also a big positive. The UBS-Bloomberg Spot Ag Index is dropping -.22%. On the negative side, Airline, Road&Rail, Gaming, REIT, Homebuilding, Bank, Networking, Disk Drive, Computer, Steel, Oil Service, Oil Tanker and Alt Energy shares are under significant pressure, falling more than 2.0%. Small-Cap and Cyclical shares are underperforming. The Transports continue to trade poorly. The Saudi sovereign cds is rising +1.67% to 138.79 bps. The avg. US price for a gallon of gas is up another .04/gallon today to $3.37/gallon. It is now up .25/gallon in 14 days. Oil trades technically like it is about to burst above $100 and the stock market is now starting to anticipate this. Gold is also poised to break out technically. Weekly retail sales rose +2.6% last week versus a +2.5% gain the prior week, but are down from a 3.6% increase the first week of January. The US Muni CDS Index is rising +2.91% to 161.67 bps. The US dollar put in a reversal today versus the euro. Sentiment regarding the currency is at bearish extremes. As well, the Citi US economic surprise index is at the highest level since Sept. 2008, while the Citi Eurozone economic surprise index continues to break down, falling to the lowest level since April 15th of last year. In my opinion, oil has to reverse lower very soon or more broad market weakness is likely in store. I expect US stocks to trade mixed-to-lower into the close from current levels on higher energy prices, growing Mideast unrest, more shorting, technical selling and profit-taking.
