BETWEEN THE HEDGES

Friday, May 11, 2012

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Less Financial Sector Optimism, Rising Eurozone Debt Angst, Technical Selling

Posted by Gary .....at 3:33 PM

Broad Market Tone:

Advance/Decline Line: Lower
Sector Performance: Mixed
Volume: Below Average
Market Leading Stocks: Underperforming

Equity Investor Angst:

VIX 19.46 +3.46%
ISE Sentiment Index 116.0 +1.87%
Total Put/Call 1.34 +38.14%
NYSE Arms 1.12 +11.08%

Credit Investor Angst:

North American Investment Grade CDS Index 107.47 +3.23%
European Financial Sector CDS Index 265.08 +.35%
Western Europe Sovereign Debt CDS Index 285.67 +.86%
Emerging Market CDS Index 269.65 +3.25%
2-Year Swap Spread 34.0 +2.25 basis points
TED Spread 37.50 unch.
3-Month EUR/USD Cross-Currency Basis Swap -45.0 -1.0 basis point

Economic Gauges:

3-Month T-Bill Yield .09% unch.
Yield Curve 158.0 -4 basis points
China Import Iron Ore Spot $137.60/Metric Tonne -1.22%
Citi US Economic Surprise Index -24.30 +1.3 points
10-Year TIPS Spread 2.14 -3 basis points

Overseas Futures:

Nikkei Futures: Indicating a +14 open in Japan
DAX Futures: Indicating -34 open in Germany

Portfolio:

Slightly Higher: On gains in my Tech and Biotech sector longs
Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower on the day, despite rising Eurozone debt angst, weakness in some key market leaders, less financial sector optimism, high energy prices, rising global growth fears, technical selling and more shorting. On the positive side, Software, Semi, Biotech and Homebuilding shares are especially strong, rising more than +1.0%. Tech/Homebuilding shares have held up well throughout the day. Oil is falling -.93%, the UBS-Bloomberg Ag Spot Index is down -1.6%, Lumber is gaining +1.9% and Gold is down -.8%. The Portugal sovereign cds is falling -1.6% to 1,074.57 bps. On the negative side, Coal, Steel, Bank, I-Banking and Education shares are under pressure, falling more than -1.0%. Financial shares have lagged throughout the day. Copper is down -1.7%. Major Asian indices fell around -1.0% overnight, led down by a -1.4% decline in South Korea after more poor economic data was reported from the region. The Citi Asia Pacific Economic Surprise Index is plunging -39.3 points today to -57.8 points, which is the worst since April 2009. After crashing in the 4th quarter of last year, China Iron Ore Spot Prices had been recovering until recently. In less than a month, they are now down -7.9%. Major European indices are mixed with a +.95% gain in Germany offset by a -.71% decline in Spain. The Bloomberg European Bank/Financial Services Index is dropping -.77%. The France sovereign cds is rising .4% to 207.02 bps, the Spain sovereign cds is rising +1.2% to 517.59 bps(testing all-time high), the Italy sovereign cds is rising +.5% to 459.03 bps, the Hungary sovereign cds is gaining +1.2% to 525.11 bps and the China sovereign cds is gaining +1.1% to 118.73 bps. Moreover, the European Investment Grade CDS Index is rising +.9% to 158.07 bps and the Italian/German 10Y Yld Spread is gaining +.3% to 399.23 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -3.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -24.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +523.0% ytd. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Overall, recent credit gauge deterioration is a big worry with a number of key sovereign cds breaking out technically. There are rumors out of the FT of an impending European LTRO 3. I continue to believe that LTRO 2 will eventually be viewed in a very negative light and I doubt the validity of this rumor. I also still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. US stocks remain extremely resilient as aggressive dip-buying materialized again off an opening swoon. However, the rally is of poor quality. Breadth is negative, the financials and some key market leaders aren’t participating, volume is below average, there are few high-volume big-gainers, copper trades poorly, the 10Y T-Note trades too well, the euro can’t sustain a bounce after its technical breakdown and gauges of credit angst are mostly higher. I have been cautioning for a few weeks that the outperformance the financial sector had enjoyed for several months was likely coming to an end. Recent events make me even more cautious on the sector. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, less US economic optimism, rising global growth fears, more shorting, technical selling, market leader weakness and less financial sector optimism.

Today's Headlines

Posted by Gary .....at 2:43 PM

Bloomberg:

Schaeuble Dares Greece Exit as Contingency Plans Start. As German Finance Minister Wolfgang Schaeuble dares Greece to quit the euro, investors and economists are mapping out what he and fellow policy makers need to do to save the single currency if his bluff is called. Emergency lending and bond buying from the European Central Bank coupled with recapitalizations and deposit insurance for lenders and broader powers for the region’s rescue fund are among the prescriptions for insulating Spain and other cash- strained nations from what Citigroup Inc. calls a “Grexit.” Pressure for contingency plans are mounting as Greece’s electoral quagmire forces euro-area officials to publicly revive the once forbidden topic of whether a nation can leave the single currency.
Schaeuble Says Greek Exit Wouldn't Bring Down Europe. German Finance Minister Wolfgang Schaeuble suggested the euro area could handle Greece dropping out, raising pressure on Greek political leaders struggling to form a government amid a rise in anti-bailout sentiment. "We have learned a lot in the last two years and built in protective mechanisms," Schaeuble told the Rheinische Post newspaper in an interview published today, when asked whether the euro area is girded for a Greek exit. His comments were confirmed by the Finance Ministry in Berlin. "The risks of contagion for other countries of the euro zone have been reduced and the euro zone as a whole has become more resistant," Schaeuble said. "The notion that we wouldn't be able to react in a short time to something unforeseen is wrong."
Schaeuble Plans Tighter Control Over State Deficits, FAZ Says. German Finance Minister Wolfgang Schaeuble plans to force the country’s states to define binding spending limits starting in 2014 to ensure adherence to a constitutional balanced-budget rule for the regions from 2020, Frankfurter Allgemeine Zeitung reported. The plan is part of the implementation in Germany of the so-called fiscal pact among 25 European Union governments that aims to ensure budget discipline, the German newspaper said. Tighter budget controls would thwart plans by the government of North Rhine-Westphalia, a coalition of the Social Democrats and Greens that are in opposition at national level, to raise the budget deficit to boost economic growth, the newspaper said. The state votes on May 13.
Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, heading for the biggest weekly increase in about two months. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 1.5 basis points to 285 at 8:35 a.m. in London, and is up 9 basis points this week, the most since March 23. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 12.5 basis points to 700. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 4.5 basis points to 161, and is up from 145 last week, heading for the biggest increase since November 25. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose five basis points to 270 and the subordinated index jumped 10 to 440.
Newedge's Blain on Outlook for JPMorgan(JPM). (video) Bill Blain, co-head of the Special Situations Group at Newedge Group Ltd., talks about JPMorgan Chase & Co.'s $2 billion trading loss and the outlook for the banking industry.
Fisher Says Excessively Big Banks Can Lose Risk Focus. Federal Reserve Bank of Dallas President Richard Fisher, when asked about a $2 billion trading loss by JPMorgan Chase & Co. (JPM), said U.S. banks can become so big they lose their focus on risk management. “You can reach a size where risk management becomes an exercise,” Fisher said today in response to audience questions following a speech to the Texas Bankers Association meeting in Fort Worth. “At what point do you reach a size you don’t know what is going on beneath you?”
Facebook(FB) Co-Founder Saverin Gives Up U.S. Citizenship Before IPO. Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill. Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website Who Owns Facebook. At the high end of the IPO valuation, that would be worth about $3.84 billion.
Drew Built 30-Year JPMorgan(JPM) Career Embracing Risk. JPMorgan Chase & Co. (JPM) Chief Investment Officer Ina R. Drew, head of the unit responsible for a $2 billion trading loss, built a 30-year career at the largest U.S. bank by embracing risk and avoiding the spotlight. “With everything she does, she thinks in terms of trading,” said Stephen Murray, head of CCMP Capital Advisors LLC, created from a JPMorgan private-equity unit in 2006. “There are risk-lovers, there are risk-haters, and the best traders will take the risk as long as they get paid for it.”
Producer Prices in U.S. Decrease for First Time in Fourth Months. Wholesale prices in the U.S. fell in April for the first time in four months, led by a decline in fuel costs that signals inflation may cool. The producer price index dropped 0.2 percent after no change in March, Labor Department figures showed today in Washington. Economists projected the gauge would be unchanged in April, according to the median estimate in a Bloomberg News survey. The 1.9 percent increase over the past 12 months was the smallest since October 2009.
Consumer Sentiment in U.S. Rises: Economy. The Thomson Reuters/University of Michigan preliminary sentiment index for May climbed to 77.8, the highest since January 2008, from 76.4 the prior month. The gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News.
Dismal China, India Data Signal Slowing Growth. Dismal data from China and India on Friday may signal a further weakening of the global recovery, undermining hopes the dynamic emerging economies of Asia can help prop up growth. China reported its industrial production rose 9.3 percent from a year earlier in April, below expectations and down from nearly 12 percent in March. Investment and retail sales also slowed, though easing inflation offers leeway for fresh moves to boost growth. India's industrial output fell 3.5 percent in March from a year earlier on weak manufacturing and investment. Output for the fiscal year ending in March rose 2.8 percent, down from 8.2 percent the year before. The anemic indicators suggest Asia's ability to counter slowing growth in Europe may be limited. It also shows that the brief burst of vitality partly fueled by European stimulus late last year is likely wearing off.
Europe's Luxury Rally Founders as China, Greece Hurt LVMH. The biggest rally in three years for luxury-goods makers in Europe is fizzling on concern slower economic growth in China and renewed euro-area political turmoil after Greece’s inconclusive election will choke off demand. The nine-company Bloomberg European Luxury Goods Index (BNLXGDEU), whose clothiers and watchmakers get 34 percent of sales from Asia, tumbled 5.5 percent over the past five days, the largest decline since Nov. 24, data compiled by Bloomberg show.
China April Home Sales Fall 16% as Property Curbs Remain. China’s home sales transaction value fell 16 percent in April from the previous month as the government reiterated it will keep curbs on the property market. The value of homes sold declined to 315.4 billion yuan ($50 billion) from 373.3 billion yuan in March and 324.9 billion yuan a year earlier, based on the difference between the National Statistics Bureau’s data for the first four months of the year and the first quarter. Housing sales value from January to April fell 13.5 percent to 1.02 trillion yuan from a year earlier, according to the data. “It’s very hard to forecast when sales will fall to the bottom,” said Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG.
U.S. Senator Questions Fed on Chinese Bank Decision. A Federal Reserve decision to let Chinese banks acquire U.S. lenders was challenged by Senator Bob Casey, who said it could open the way for Chinese government-run institutions to undercut U.S. banks. “I worry that these banks and their U.S. subsidiaries will use their state support as a way to underprice U.S. banks,” Casey, a Pennsylvania Democrat and chairman of the Joint Economic Committee, said in a letter yesterday to Fed Chairman Ben S. Bernanke.
France Entrepreneurs Flee From Hollande Wealth Rejection. “What’s really driving my departure is the fact that I don’t share the values that emerged during the election, the rejection of ambition and success,” he said in an interview. “It’s part of France’s difficult relationship with money, but it has reached a new level. Even if it’s utopian, I need to believe for me and my descendants that the sky is the limit.”

Wall Street Journal:

Hedge Funds Profit as JPMorgan(JPM) Sees Losses. For a group of hedge funds and other traders, J.P. Morgan Chase & Co.’s sudden $2.3 billion trading loss means big profits, according to people familiar with the matter. Firms such as BlueMountain Capital Management LLC and BlueCrest Capital Management LP each scored gains of about $30 million, according to people familiar with the matter. Representatives for the firms declined to comment. One trader elsewhere estimated that well more than a dozen firms, including his, as well as traders at banks also profited by taking the other side of J.P. Morgan’s trades.
Spanish Default Protection Costs Hit Fresh Record High. The cost of protecting Spanish government debt against default rose to a fresh record high Friday. Spain's five-year CDS spread--insurance-like financial tools that protect debt holders in the event of a default--widened to 521 basis points, above the intra-day record of 520 basis points hit in April, according to data-provider Markit. The move came amid increased worries about Spain, which has joined Greece at the center of the euro-zone debt crisis. Spain's CDS were 11 basis points wider on the day. This now means it costs an average of $521,000 a year to insure $10 million of debt issued by the country. Italy's five-year CDS was 12 basis points wider at 452 basis points.
Copper Prices Fall on Chinese Data, EU Worries. Copper prices retreated Friday on weaker Chinese industrial production data and simmering concerns about Europe's debt problems. The most actively traded contract, for July delivery, was recently down 4.50 cents, or 1.2%, at $3.6455 a pound on the Comex division of the New York Mercantile Exchange. China's industrial output growth slowed in April to the lowest level since May 2009, stoking worries over slowing growth in the world's second-largest economy. Chinese value-added industrial output rose 9.3% in April from a year earlier, slowing sharply from a 11.9% on-year increase in March. The data fell short of market expectations of a 12.2% gain. "Markets were left unimpressed by the macro reports coming out of China," said Edward Meir, senior commodity analyst with INTL FCStone.
What Beached the London Whale? Credit Indices.

CNBC.com:

Nvidia(NVDA) Revenue, Outlook Beat Street; Shares Jump. Nvidia's quarterly revenue and outlook topped Wall Street estimates on better-than-expected sales of its latest graphics chips, sending its shares up sharply in premarket trade.
Fitch Warns Euro Zone of Downgrades If Greeks Exit. Credit rating agency Fitch put the whole of the euro zone on notice on Friday that were Greece to leave the currency bloc as a result of its current crisis, the remaining countries could find their sovereign ratings at risk. It said it was likely to put all euro area ratings on negative watch if Greece were to leave and that those countries which currently have a negative outlook on their ratings would be at most immediate risk of a downgrade. It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium.

Business Insider:

Zero Hedge:

NY Post:

YouTube Considering Introducing Subscription-Based Streaming Service. Insiders familiar with YouTube’s plans stress the move doesn’t mean the Google(GOOG) unit is suddenly going to start charging for what is already available for free — but rather would add some premium offerings not on the site.

New York Times:

SEC Opens Investigation Into JPMorgan's(JPM) $2 Billion Loss.
European Warning Over Spanish Debt. As the Spanish government Friday took further measures to shore up the country’s banking sector, the European Commission injected a new dose of gloom by warning that Madrid was likely to miss its deficit-reduction targets for this year and next by wide margins. Spain was headed for a budget deficit of 6.4 percent of gross domestic product this year and 6.3 percent next year — far beyond the 3 percent maximum allowed under European Union rules and exceeding its own target of 5.3 percent for 2012, according to the commission’s spring economic forecasts. “For Spain, the key to restoring confidence and growth is to tackle the immediate fiscal and financial challenges with full determination,” Olli Rehn, the E.U. economic and monetary affairs commissioner, told reporters. “This calls for a very firm grip to curb the excessive spending of regional governments.”
China's Growth Slows, and Its Political Model Shows Limits.

CNN:

Why It's Time For Higher Interest Rates by Shelia Bair. Progressives, led by Paul Krugman, believe that we can fix our economic woes with more consumer debt and higher inflation. The reality is that near zero interest rates encourage speculation, discourage savings, weaken pension funds, and put millions of baby boomers at risk.

Rasmussen Reports:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows Mitt Romney earning 50% of the vote and President Obama attracting 43% support. Four percent (4%) would vote for a third party candidate, while another three percent (3%) are undecided.

Reuters:

Sound Spanish banks to keep toxic assets on books-source. Spanish banks able to cover by themselves losses on their toxic property assets won't be forced to remove them from their books while it will be compulsory for those receiving public help, a Spanish government source said on Friday. All Spanish lenders will have to create holding companies where problematic real estate assets will be parked to be later sold off. "The removal (of toxic assets from books) won't be compulsory for entities which does not require public backing," the source said.
Greek Finmin Asks PM to Decide on Paying May 15 Bond. Greece's finance minister said on Friday he had asked the prime minister to decide whether the country will pay a remaining amount of 430 million euros ($557 million) of a bond maturing on May 15, which was not part of a major bond swap.

Financial Times:

Triple Whammy Leaves Pain For Spain. Denial is not just a river in Egypt. There have been many times over the past few years when Spain has declared the problems at its banks officially solved. A bank rescue fund was set up in 2009; the government then forced mergers between its 45 weak savings institutions; and as recently as February it demanded that banks set aside an extra €36bn against property loans gone bad. Both in public and behind the scenes, Spain’s government and its regulatory authorities argued that its property market had stabilised, and its banks were coming out of the woods. Neither was true.
US Banking Strength Worries Investors. After leading the S&P 500 in gains so far this year, financial shares fell sharply after JPMorgan Chase rattled markets on Thursday, and raised doubts about the strength of banks’ balance sheets. JPMorgan fell more than 8 per cent to trade at $37.48. Friday’s slump followed heavy losses in extended trading on Thursday in response to its admission that the bank had made “egregious mistakes”.
JPM Whale-Watching Tour. Too Big To Hedge. Throughout FT Alphaville’s coverage of the credit trades of JP Morgan’s Chief Investment Office, there were two thoughts that kept nagging us. We’d think about them whenever we wrote about the technicals the trades might be creating. One was: could this really happen under CEO Jamie Dimon’s watch? The other was: where the hell are the regulators in all of this?

Telegraph:

Debt Crisis: Live. The Spanish government has told banks they must increase their provisions against property loans from 7pc to 30pc, meaning they must raise another €30bn.

Les Echos:

French president-elect Francois Hollande plans to partly reverse Nicolas Sarkozy's reduction in the French wealth tax effective this year.

El Pais:

Spain may put public money into more struggling banks, make lenders provision up to 47% for current loans to real estate developers and force banks to sell 5% of their real estate holdings each year. The newspaper cited a draft bank reform law that was presented to the cabinet today.

Bear Radar

Posted by Gary .....at 1:34 PM

Style Underperformer:

Small-Cap Value -.40%

Sector Underperformers:

1) Education -2.80% 2) Steel -.97% 3) Banks -.91%

Stocks Falling on Unusual Volume:

JPM, UAN, C, RPXC, CHK, ERF, RNF, MKTG, INFI, BRKS, RDY, OTTR, GSVC, APEI, CPNO, APOL, SVVC, SYNC, OSUR, GEOY, UBNT, JOBS, OZRK, PMFG, INFI, JWN, WTS, DKS, AVP, DAR, HOG, UAN, CHKR, RNDY and ALR

Stocks With Unusual Put Option Activity:

1) JPM 2) CA 3) JWN 4) RIO 5) FXA

Stocks With Most Negative News Mentions:

1) BBY 2) ANR 3) JPM 4) GEOY 5) KEM

Charts:

Bull Radar

Posted by Gary .....at 11:30 AM

Style Outperformer:

Mid-Cap Growth +.82%

Sector Outperformers:

1) Semis +1.72% 2) Homebuilders +1.62% 3) Software +1.29%

Stocks Rising on Unusual Volume:

NVDA, GSM, RGLD, ESRX, BBBY, CIEN, DDS, MDR, DY, GSM, AH and TPX

Stocks With Unusual Call Option Activity:

1) ANN 2) MHR 3) JWN 4) JPM 5) JBLU

Stocks With Most Positive News Mentions:

1) PG 2) ABC 3) BBBY 4) JWN 5) VZ

Charts:

Friday Watch

Posted by Gary .....at 12:25 AM

Evening Headlines
Bloomberg:

JPMorgan(JPM) Loses $2 Billion in Chief Investment Office. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging. “This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York. The chief investment office has been transformed in recent years under Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, according to five former employees, Bloomberg News reported April 13. Some bets were so big that JPMorgan probably couldn’t unwind them without losing money or roiling financial markets, the former executives said.
Spending Cuts Plunge Spanish Highways Into Darkness. Cars went barreling along the highway in darkness, ferrying families from Madrid to the beaches of Catalonia during the Easter holiday season, the black stalks of unlit streetlamps flicking past their windows. Truck drivers honked angrily as motorists switched on their full beams to pick out curves in the road, momentarily dazzling oncoming traffic. Motorists traveling along the main highway linking the Spanish capital to Seville and the rest of the south face similar challenges. “In some stretches it looks like they’ve been switching off the lights, in others they are missing the bulbs or the cables,” says Pascual Cabello, 32, who runs a fleet of eight trucks. “It’s only going to get worse,” he adds. The most draconian spending cuts on record are plunging Spain’s cities and highways into darkness as ministries and mayors struggle to pay for basic services. To appease European officials and bond investors, Prime Minister Mariano Rajoy is trying to pare the country’s deficit by 27 billion euros ($35 billion), an amount equivalent to almost a third of central government spending in 2011. At the same time, Rajoy is battling Spain’s second recession since 2009. Unemployment has edged up to 24 percent, pushing up social security payments and damping tax revenue.
Germany Examines Bank Use of ECB Loans on Bubble Fear. German lenders’ use of cheap loans from the European Central Bank is under examination by the country’s top banking supervisor amid concerns the influx of funding may eventually create “a new bubble.” Banks that took “implausibly high” amounts have to explain how they plan to use the money, said Raimund Roeseler, head of banking supervision at the country’s financial regulator Bafin. The exercise is part of a strategy change focusing more on what banks plan for the future than looking at what they did in the past, he said.
Spain Stakes Credibility on Fourth Bank Cleanup in Three Years. Spain will make a fourth attempt to convince investors its banking system is solid after failing to do so with three prior tries in as many years. “All the previous efforts have been announced with a drumroll and a big clash of cymbals but they weren’t credible in the end,” said Javier Diaz-Gimenez, an economics professor at the University of Navarra’s IESE business school in Madrid. “They must get it right this time.”
Greece Strives for Government After Election Raises Euro Doubts. Greece's political leaders go into a fifth day of talks today to carve out a government with Evangelos Venizelos, the socialist Pasok leader, set to press counterparts on a proposal for a unity government that would avert a new election. Venizelos, who received the mandate to form a government yesterday, said there was a first "good omen" since the inconclusive May 6 election, after Democratic Left leader Fotis Kouvelis outlined a proposal designed to keep the country in the euro area. "Our views are very close," Venizelos said to reporters in Athens after meeting with Kouvelis. "I will continue the effort, preparing the ground for the phase of negotiation that will be coordinated by the president of the republic."
Bundesbank’s Weidmann Hits Back at FT Report, Sueddeutsche Says. Bundesbank President Jens Weidmann hit back at a Financial Times report that the bank is prepared to accept higher inflation rates, the Sueddeutsche Zeitung said, citing an interview. Such reports are an “absurd discussion,” Weidmann is quoted as saying. Weidmann said that while German inflation may be higher than in the past, there is no danger as long as the European Central Bank keeps the euro-area average at just below 2 percent, according to Sueddeutsche.
Weidmann Tells Bild Inflation Contained If ECB Sticks to Mandate. European Central Bank council member Jens Weidmann said if policy makers stick to the bank’s core principles, inflation will remain contained, Germany’s Bild newspaper reported, citing an interview. “The ECB council decides on monetary policy,” Weidmann, who also heads Germany’s Bundesbank, is quoted as saying. “I stand for monetary stability in the euro area. At the moment, it is decisive that the guardians of the currency don’t let their cart get hitched to the carriage of fiscal policy. If we hold to our principles, then there is no danger that inflation will get out of control.” Weidmann also said that Germany, which for many years enjoyed inflation below the euro-area average, may now see above-average inflation rates due to its strong economy and low unemployment, Bild reported.
Germans Increase Their Foreign Bank Deposits by 47%, FTD Says. German savers increased the amount they have deposited in foreign-based banks by almost half in the past year, Financial Times Deutschland reported in a preview of an article to be published tomorrow, citing its own calculations. In the 12 months from April last year, Germans increased their deposits in non-German banks by 21.6 billion euros ($28 billion) to 67 billion euros, FTD said. German savings banks, or Sparkassen, meanwhile, took in 17.8 billion euros, according to the newspaper. More than 5 billion euros was deposited with Bank of Scotland Plc, close to 2 billion with ABN Amro Bank NV, and just since last autumn, Russia’s VTB Direktbank has received close to 1 billion euros, FTD said.
Bernanke Tells Senators About Risk From End of Pro-Growth Plans. Federal Reserve Chairman Ben S. Bernanke spoke to a group of senators today about the potential harm to the economy from the expiration of several pro-growth policies, according to senators who attended the meeting. Bernanke discussed the scheduled end of programs including the Bush tax cuts, the payroll tax holiday and extended unemployment benefits, as well as budget cuts that are set to take effect in January of 2013, said Kent Conrad, a North Dakota Democrat. "It's clear to all of us and he stressed that if all of these things occur it could drive us back into a worse recession," said Richard Durbin of Illinois, the chamber's No. 2 Democrat, after the meeting. "The sooner we can resolve these issues, the more likely we are to give confidence to consumers and investors across America."
JPMorgan(JPM) Default Swaps Climb After $2 Billion Trading Loss. The cost of protecting debt of JPMorgan Chase & Co. from default rose to the highest level in a month after the bank said it lost about $2 billion with positions taken by its chief investment office. Credit-default swaps on New York-based JPMorgan climbed to 118.5 basis points as of 5:42 p.m. in New York, according to prices from data provider CMA, which is owned by CME Group Inc. The contracts were at about 111 basis points before the announcement.
U.S. Postal Service Cash Projected at Zero in October. The U.S. Postal Service said it lost $3.2 billion in the quarter ended March 31 and will temporarily run out of cash in October, adding urgency to its pleas for Congress to let it make changes including ending Saturday delivery. The service forecast a $9.1 billion loss for the 12 months ending Sept. 30, not counting a required $5.5 billion payment for future retirees' health benefits, Chief Financial Officer Joe Corbett said today on a conference call with reporters.
Facebook(FB) IPO Overvalued at $96 Billion in Global Poll. Facebook Inc. (FB), seeking as much as $96 billion in its initial public offering next week, is overvalued at that price, according to a Bloomberg investor poll.
Gilead’s(GILD) Pill Wins U.S. Panel Backing to Prevent HIV. Gilead Sciences Inc. won the backing of an advisory panel for the first approval of a drug to prevent HIV infections in healthy people. The panel of doctors, researchers and patients voted that Truvada, currently marketed to treat those infected with HIV, is safe and effective as a form of prevention in high-risk individuals, including gay men whose partners have the disease. The Food and Drug Administration is expected to decide by June 15 and doesn’t have to follow the panel’s recommendation.
China's Big Banks Look More Like Paper Tigers. After spending time combing through the financial reports of China’s biggest publicly traded, state- owned banks, I now understand what Jim Chanos, the famous short- seller, means when he keeps saying they are “built on quicksand.” He’s definitely on to something.
Sony(SNE) Falls to 31-Year Low as Forecast Misses Estimates. Sony Corp. (6758) fell to the lowest level in Tokyo trading since 1980, when the Walkman was new and before it introduced the first compact-disc player, after forecasting profit that lagged behind analyst estimates. Sony tumbled as much as 5.8 percent to 1,142 yen, the lowest intraday price since Aug. 14, 1980, and traded at 1,144 yen as of the 12:37 p.m. on the Tokyo Stock Exchange.

Wall Street Journal:

J.P. Morgan's $2 Billion Blunder. A massive trading bet boomeranged on J.P. Morgan Chase JPM +0.25% & Co., leaving the bank with at least $2 billion in trading losses and its chief executive, James Dimon, with a rare black eye following a long run as what some called the "King of Wall Street." The losses stemmed from wagers gone wrong in the bank's Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported early last month that large positions taken in that office by a trader nicknamed "the London whale" had roiled a sector of the debt markets.
J.P. Morgan’s(JPM) London Whale Drowns Bank Stocks.
Costly Liabilities Lurk for Gas Giant. Embattled Chesapeake Energy Corp. has saddled itself with about $1.4 billion of previously unreported liabilities over the next decade through off-balance-sheet financial deals. Most of these costs will hit this year and next, at a time when the company needs to raise substantial cash to cover operating expenses and its move into the more lucrative oil business.
Dish Network(DISH) Offers DVR That Removes Ads. Dish Network Corp. released a feature on its digital video recorder Thursday that automatically removes commercials from shows aired by major broadcast networks, threatening to seriously undercut billions of dollars in broadcast television advertising.
With French Election Over, Unions Fear Layoffs. As presidential rivals debated the roots of unemployment during the recent campaign, many companies held off on announcing job cuts to avoid inflaming an already fraught political issue. But now that voters have chosen Socialist François Hollande over center-right President Nicolas Sarkozy to be their next president starting on Tuesday, labor unions say many large French companies are preparing to announce large layoffs in the weeks and months ahead.
Google(GOOG) Preps for Possible FTC Fight. Amid signs the Federal Trade Commission is ratcheting up its investigation of Google Inc., the search giant is returning fire by stepping up a public relations campaign to make the case that its activities don't violate antitrust law.
Chesapeake(CHK) Flies in Front of Fractional-Jet Set. Chesapeake Energy Corp., which came under fire this week in a shareholder lawsuit over the cost of personal travel aboard company jets by executives, is by far the largest single owner of fractional aircraft shares in the U.S., according to industry consultants and databases.
NY Fed: ECB Taps $532M From Dollar Swap Facility In May 9 Week. The European Central Bank borrowed new dollars from the Federal Reserve during the week ended May 9, but also allowed a greater amount of prior loans to roll off, the Federal Reserve Bank of New York reported Thursday.
Strassel: Trolling for Dirt on the President's List. First a Romney supporter was named on an Obama campaign website. That was followed by the slimy trolling into a citizen's private life. Here's what happens when the president of the United States publicly targets a private citizen for the crime of supporting his opponent.

Business Insider:

Zero Hedge:

CNBC:

Japan Will Follow Europe With a Debt Crisis: Kyle Bass. Japan is about to join Europe in the debt crisis ranks, with the two regions offering the best opportunities for investors to bet against, hedge fund manager Kyle Bass said. While the world's attention has been focused on sovereign debt issues in Greece and elsewhere, Japan will emerge as a problem area as well as the European developments accelerate, Bass told attendees at the Skybridge Alternatives, or SALT, conference. "Greece will circle the drain and be ungovernable in the next 30 to 60 days," said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. "Japan is in the crosshairs of the market...I've never seen more mispriced optionality in my entire life." The Bank of Japan, the nation's equivalent of the U.S. Federal Reserve, is effectively monetizing the national debt by buying up 50 trillion yen-worth of Japanese Government Bonds, commonly referred to as JGBs in the marketplace, Bass said.
Daniel Stern: Volcker Rule Driving Talent to Hedge Funds. The Volcker Rule is driving talented traders to leave large, well-known Wall Street investment banks for hedge funds, Reservoir Capital founder Daniel Stern said at the Skybridge Alternatives (aka SALT) investor summit Wednesday. "I get a call a day from head hunters looking to place talent," he said.
China Inflation Eases in April, Uptick in Output Seen.

LA Times:

Video Game Sales Plunge 42% in April. Video game sales took a nose dive in April, plunging a stomach-churning 42% compared with a year earlier as companies cranked out fewer releases than in April 2011. Retailers rang up just $292.1 million in game sales last month, down from $503.2 million a year earlier, according to the NPD Group, a market research firm.

Washington Post:

ObamaCare Is Taxing Jobs Out of Existence.

CNN:

Oil Rig Workers Make Nearly $100,000 A Year.

Rasmussen Reports:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney earning 49% of the vote and President Obama attracting 45% support. Three percent (3%) would vote for a third party candidate, while another two percent (2%) are undecided.

USA Today:

FDA advisers recommend approving Arena weight-loss drug.

Reuters:

Broker LPL venturing into little-loved mass market. LPL Investment Holdings , the largest U.S. independent brokerage, said it will launch an investment advisory business it hopes will capture some of wealth spread out among millions of middle class Americans. LPL's new venture is in the early stages of development, but the Boston-based company says it will hire and train a network of self-employed advisers to offer investment advice to mass market consumers, defined by Cerulli Associates as those with less than $100,000 to invest.
India Drugs Inquiry Could Prompt New U.S. Scrutiny. Global drugmakers could face new U.S. scrutiny after a report from lawmakers in India alleged abuses in that country's drug approval process, lawyers familiar with such investigations said.
Nuance(NUAN) quarterly profit beats estimates. Speech recognition software maker Nuance Communications Inc's second-quarter profit beat analysts' estimates on higher demand for its products across all segments.
Nordstrom(JWN) takes hit on e-commerce expenses. Retailer Nordstrom Inc reported a quarterly profit below Wall Street's expectations after pouring tens of millions of dollars into its e-commerce business, and said it would spend more on that during the rest of the year than previously estimated.

Financial Times:

Moody's Issues Capital Warning to Global Banks. Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness. The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses.
Warnings of Civil Unrest in Venezuela. Politicians across the spectrum in Venezuela are trading dire predictions of impending violence in the vacuum left by uncertainty about the health of President Hugo Chávez. The opposition has warned of plans to postpone or even cancel elections due in October because of speculation that the socialist leader’s cancer will prevent him from running.

Telegraph:

It's Too Late for Germany to Save the Euro. Despite belated gestures from Berlin, the single currency cannot survive if and when Greece leaves it.

Shanghai Securities News:

China Investment Growth Faces Slowdown. China's manufacturing investment growth in the future may not maintain a 24% rate recorded in the first quarter because of uncertainties in exports, citing Zhang Liqun, a researcher at the Development Research Center of the State Council.

Evening Recommendations

None of note

Night Trading

Asian equity indices are -1.25% to -.50% on average.
Asia Ex-Japan Investment Grade CDS Index 181.0 +1.5 basis points.
Asia Pacific Sovereign CDS Index 145.50 +1.75 basis points.
FTSE-100 futures -.70%.
S&P 500 futures -.80%.
NASDAQ 100 futures -.56%.

Morning Preview Links

Earnings of Note
Company/Estimate

(NVDA)/.15

Economic Releases
8:30 am EST

The Producer Price Index for April is estimated unch. versus unch. in March.
The PPI Ex Food & Energy for April is estimated to rise +.2% versus a +.3% gain in March.

9:55 am EST

Preliminary Univ. of Mich. Consumer Confidence for May is estimated to fall to 76.0 versus 76.4 in April.

Upcoming Splits

(CIG) 5-for-4

Other Potential Market Movers

The Fed's Fisher speaking and the (ADVS) Investor Day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and technology shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

Thursday, May 10, 2012

Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, Short-Covering, More Financial Sector Optimism, Bargain-Hunting

Posted by Gary .....at 3:23 PM