Broad Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Volume: Slightly Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 15.01 +6.08%
- ISE Sentiment Index 101.0 -23.4%
- Total Put/Call .79 -1.25%
- NYSE Arms 1.01 -35.65%
Credit Investor Angst:
- North American Investment Grade CDS Index 98.16 bps +2.63%
- European Financial Sector CDS Index 193.93 bps +3.80%
- Western Europe Sovereign Debt CDS Index 136.92 +1.14%
- Emerging Market CDS Index 227.12 +3.23%
- 2-Year Swap Spread 13.75 +.5 basis point
- TED Spread 25.75 -1.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -22.75 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .11% +1 basis point
- Yield Curve 141.0 -5 basis points
- China Import Iron Ore Spot $103.70/Metric Tonne unch.
- Citi US Economic Surprise Index 29.1 +8.5 points
- 10-Year TIPS Spread 2.44 -2 basis points
Overseas Futures:
- Nikkei Futures: Indicating -107 open in Japan
- DAX Futures: Indicating -62 open in Germany
Portfolio:
- Slightly Higher: On gains in my Emerging Markets shorts and Index Hedges
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my Emerging Markets shorts
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Fed's Plosser Says QE3 Risks Fed Credibility, Won’t Boost Jobs. Federal Reserve Bank of
Philadelphia President Charles Plosser said new bond buying
announced by the Fed this month probably won’t boost growth or
hiring and may jeopardize the central bank’s credibility. “We are unlikely to see much benefit to growth or to
employment from further asset purchases,” Plosser said in the
text of a speech prepared for delivery today at the reserve bank
in Philadelphia. “Conveying the idea that such action will have
a substantive impact on labor markets and the speed of the
recovery risks the Fed’s credibility.” Economic research indicates that additional asset purchases
are “unlikely to reduce long-term interest rates by a
significant amount” and that lowering rates “by a few more
basis points” won’t spur growth and hiring, said Plosser. “I opposed the Committee’s actions in September because I
believe that increasing monetary policy accommodation is neither
appropriate nor likely to be effective in the current
environment,” Plosser said. “Every monetary policy action has
costs and benefits, and my assessment is that the potential
costs and risks associated with these actions outweigh the
potential meager benefits.” The Fed’s “hard-won credibility” is crucial because if
the public doesn’t have confidence in policy makers, their
ability to set effective monetary policy will be harmed, hurting
households and businesses, Plosser said. If people believe the
central bank will delay raising rates, they may “infer that the
Fed is willing to tolerate considerably higher inflation,”
spurring an increase in inflation expectations that would
require a response from the FOMC, Plosser said. “The Fed’s most recent actions carry with them significant
risks,” Plosser said. “I am not forecasting that those risks
will necessarily materialize and I hope they will not. But if
they do, they could prove quite costly to the economy.” Richmond Fed President Jeffrey Lacker, who votes on the
FOMC this year and was the only policy maker to dissent at the
last meeting, said QE3 probably won’t do much to boost the labor
market. “This is going to have a greater effect on inflation
and a minimal impact on jobs,” Lacker said in a Sept. 15
interview on National Public Radio. Similarly, Richard Fisher of Dallas, who doesn’t vote on
monetary policy this year, opposed the third round of purchases,
which he said led to an increase in market expectations for
higher inflation without more job creation. “I do not see an
overall argument for letting inflation rise to levels where we
might scare the market,” Fisher said in a Bloomberg Radio
interview.
- Spanish, Italian Bonds Decline After Demand Drops at Debt Sales. Spanish and Italian government
bonds fell as demand declined when the two nations sold debt
today amid concern the region’s financial turmoil is worsening. Spain’s securities dropped for the first time in three days
as Deputy Prime Minister Soraya Saenz de Santamaria said the
country needs to know how much the European Central Bank will
spend on debt purchases before it decides whether to ask for a
bailout. German two-year notes fell as ECB Governing Council
member Ewald Nowotny said he doesn’t see a need to cut interest
rates at the moment. “Markets are likely to be looking for any indication of a
softening in investor appetite, through lower demand or rising
yields,” said Brian Barry, an analyst at Investec Bank Plc in
London. Rising yields at Spain’s bill sale “could potentially
be an indication of the growing sense of unease felt by
investors over the protracted bailout saga.” Spain’s two-year yield climbed 13 basis points, or 0.13
percentage point, to 3.16 percent at 4:19 p.m. London time. The
4.75 percent note due in July 2014 dropped 0.23, or 2.30 euros
per 1,000-euro ($1,295) face amount, to 102.775. The 10-year
yield increased seven basis points to 5.76 percent.
- Rajoy Defied as Catalan Head Seeking Autonomy Calls Vote. Catalan President Artur Mas called
early elections for Nov. 25, defying Spanish Prime Minister Mariano Rajoy in a campaign that will focus attention on the
potential for Spain’s biggest region to declare independence. Mas made his announcement to lawmakers in Barcelona five
days after Rajoy rejected his bid for greater control of the
region’s tax revenue. The Catalan leader, who has sought a 5
billion-euro ($6.5 billion) bailout from Madrid, said last week
Rajoy lacked the political courage to forge a deal. The challenge to Rajoy adds to the premier’s woes as he
fights to avoid a European bailout that imposes austerity on
Spaniards already protesting against the deepest budget cuts on
record. Catalonia, where 1.5 million people demonstrated for
independence in the capital Barcelona this month, accounts for a
fifth of the Spanish economy and is home to some of the nation’s
largest companies.
- Irish Taxpayers Fund Army Bras to Avoid Greek-Style Protests. Paying for military bras, shoes for civil servants and
bonuses for handling animal carcasses is the price of industrial peace
in Ireland. After reviewing more than 1,100 special allowances
for state workers, the government last week abolished one: a travel
expense. Among those it kept are the 27.40 euros ($35.80) a year for
female soldiers to buy underwear and night attire and 47.92 euros a week
for attendants to ensure post is delivered to staff at the Chief State
Solicitor’s Office before 9.15 a.m. “The failure to implement
further planned cuts in expenditure is a worrying development,” said
Conall Mac Coille, an economist at Dublin-based Davy, the largest Irish
securities firm. “It is going to be very difficult for the government to
pursue the needed cuts without touching pay and services.”
- Iron-Ore
Supply to Seaborne Market Seen Rising 15% by Citigroup. Supply of iron
ore into the seaborne market will rise 15% in the current half from
2012's first six months as Vale SA and Rio Tinto Group increase
production, said Citigroup Inc. Supply will climb to 470 million tons in
the first half and 440 million tons a year earlier, Citi Research said.
Most of the projected increase stems from a rebound in output at Rio
Tinto's mines in Western Australia and expansions by Vale at Carajas and
the South Eastern Systems, Citi Research said.
- Young Adults Flock to Parents' Homes Amid Economy. The Class of 2008, born during the historic bull market that closed the past century, reached a dubious distinction last year:
More than a million of the college graduates have gone back home. The number of 26-year-olds living with parents has jumped almost 46
percent since 2007, according to Census Bureau data compiled by the
University of Minnesota Population Center. Last year, the number of
18-
to 30-year-olds living with their parents grew to 20.7 million, a 3.9
percent gain from 2010. The figures underscore the difficulty that
millions of young people have had in finding jobs and starting careers
in the U.S.
- Health-Care Price Rise Poses Challenge for U.S. Overhaul.
Medical prices accelerated faster than some projections last year and
the number of uninsured is rising, according to data that show the U.S.
goal of expanding health care is veering onto a more difficult road. Costs
for people with employer-sponsored insurance plans jumped 4.6 percent
in 2011, more than the government’s 3.9 percent estimate for the entire
health system, the Health Care Cost Institute, which analyzed claims
from UnitedHealth Group Inc. (UNH), Aetna Inc. (AET) and Humana Inc.
(HUM), said today. A study by the U.S. Centers for Disease Control and
Prevention found the number of people without insurance climbed 1.7 percent in the first quarter of 2012. The
data pose a challenge for the Obama administration as it carries out
the 2010 Affordable Care Act, which promises to expand coverage to 30
million Americans starting in 2014 and trim health costs. The CDC
reported that 47.3 million people lacked insurance, and the health
institute said hospitals and doctors raised prices at a clip that
outstripped demand. “If you don’t bend the cost curve, ultimately
insurance gets more expensive,” said Douglas Holtz-Eakin, the president
of the American Action Forum, a Washington-based advocacy group that opposes the health law. “It’s a big problem for the Affordable Care Act.” The overhaul law may be contributing to higher costs,
said Martin Gaynor, an economics professor at Carnegie Mellon
University and chairman of the Washington-based Health Care Cost
Institute.
- Morgan Stanley(MS) Recommends Reducing Junk Bond Holdings. Investors should reduce their
holdings of speculative-grade bonds going into the last three
months of the year as yields on the notes hover near record
lows, according to Morgan Stanley. “Risk/reward for the asset class is less attractive today
than at any other point this year,” analysts Adam Richmond and
Jason Ng wrote in a report dated today. “The main driver of our
downgrade is unattractive total return prospects going
forward.”
- Consumer Confidence in U.S. Rises.
Wall St. Journal:
- EU Lawmakers Set to Back New Derivatives Rules. European lawmakers are set to agree on new rules Wednesday to tighten regulation
over opaque derivatives markets, force delays on high frequency trading and
restrict the commissions brokers can accept for selling financial products. The rules, called the Markets in Financial Instruments Directive, aim to
create a regulated trading environment for over-the counter derivatives and
other off-market financial products. They are part of an effort by nations of
the Group of 20 large economies to bring transparency to "dark pools" where
financial instruments are traded away from public exchanges.
- As Manufacturers’ Costs Tick Up, Hiring Still Muted.
MarketWatch.com:
- The devil in the housing report details. Home prices are rising, experts say, but not as much as one report may
suggest. And to maintain a realistic view of any real-estate recovery,
it may be wise to err on the conservative side.
CNBC:
Zero Hedge:
Business Insider:
New York Times:
Reuters:
Financial Times:
- Scepticism Grows Over 'QE Infinity'. Among
the trading rooms and floors of Connecticut and Mayfair, supposedly
sophisticated money managers are raising big questions about QE3 – and
whether, this time around, the Fed is not risking more than it can
deliver. Such scepticism is not easy to maintain. “When I started out in asset
management I was told two rules: the trend is your friend and don’t
fight the Fed,” says Luke Ellis, who oversees $19.5bn in hedge fund
investments at Man Group’s FRM. “For the first time we now have the Fed
fighting the trend.”
Telegraph:
El Mundo:
- Prime Minister Mariano Rajoy intends to raise pensions by 1% next year. The 1% increase will cost the state EU1.2b.
The Australian:
- Low-doc risks rise in loans scramble. HIGHER-RISK pre-GFC-style lending practices are flooding back
with non-bank lenders scrambling for their share in the burgeoning
sub-prime lending market. Non-bank major lender Resimac has embarked on a campaign to
capitalise on the growing sub-prime sector and is offering low-doc loans
to borrowers of up to 90 per cent of the value of a home.
Kyodo News:
- More
than 60 Japanese companies including Canon Inc. were told to leave an
international trade show that began today in Chengdu, China.
Xinhua:
- China
Researcher Sees Slowing 3Q Economic Growth. Zheng Xinli, vice chairman
of the China Center for International Economic Exchanges, said that
China's economic growth in the 3rd quarter will continue to slow. The
"unexpected" impact of the euro debt crisis on China's exports, and
liquidity tightening to curb inflation are causes for the slowdown,
Zheng says.
Style Underperformer:
Sector Underperformer:
- 1) Education -3.20% 2) Steel -2.20% 3) Alt Energy -1.80%
Stocks Falling on Unusual Volume:
- RMBS,
BAS, ATML, KEG, VELT, SEAC, CRAY, VRTX, NMFC, EPD, Z, HR, CQP, FWRD,
KORS, TSLA, ASH, MM, FDS, WRLD, CGNX, GWRE, ESI, AVT, DECK, PAYX, RHT,
PCRX, RBC, JOY, ASTE, DV, PNNT, SPLS and SPN
Stocks With Unusual Put Option Activity:
- 1) MRO 2) Z 3) TSLA 4) SWY 5) MMR
Stocks With Most Negative News Mentions:
- 1) NBR 2) ADP 3) TSLA 4) ORCL 5) F
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gaming +1.30% 2) Gold & Silver +1.04% 3) Drugs +.89%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) ATVI 2) WAG 3) ABT 4) HNR 5) NIHD
Stocks With Most Positive News Mentions:
- 1) JEC 2) NWSA 3) SWY 4) UDRL 5) HPQ
Charts:
Evening Headlines
Bloomberg:
- Spanish Bad Bank Risks Investor Conflict With Stressed Lenders. Spain must ensure a so-called bad
bank meets investor demands for yield without undermining the
balance sheets of lenders as the government seeks a panacea for
the country’s real estate crisis. “If the new investors do not believe they are going to get
a good return on their investment, they will not want to get
involved,” said Vanessa Gelado, director of Drago Capital, a
Madrid-based real estate fund that’s considering investing in
the bad bank. “It’s a very difficult equilibrium to achieve.” The terms of Spain’s 100 billion-euro ($129 billion) bank bailout oblige Prime Minister Mariano Rajoy to set up an asset
management firm to house foreclosed homes and real estate loans
from banks that received state aid. The government wants private
investors to own the majority of the bank so the debt doesn’t
contaminate national accounts as it tries to rein in the euro
region’s third-biggest budget deficit. The strategy pits investor demands for low valuations on
assets transferred to the bad bank with the needs of some
lenders to support real estate prices to avoid further losses,
said Luis Garicano, a professor at the London School of Economics. “It’s a very difficult balance to achieve, or maybe it’s
impossible,” said Garicano in a phone interview. “If you’re
the government, you’re trying to attract investors, but at the
same time you don’t want to underpay for the assets or you risk
undermining the banks and maybe having to recapitalize them
unnecessarily.”
- China Stocks Swing Between Gains and Losses. The Shanghai Composite Index fell 0.1 percent to 2,030.68
as of 10:37 a.m. local time, after changing directions at least
10 times.
- China Wealth Gap to Stay in Danger Zone, Government Adviser Says. China's income gap will persist at
a “dangerously” high level over the coming decade, putting
pressure on the nation’s incoming leaders to curb corruption and
state control of industries, according to a government adviser. China’s Gini coefficient a measure of inequality, may
hover around 0.5, Li Shi, who helped draft a government plan on
income distribution, said in an interview last week. The
government hasn’t published a countrywide Gini figure since 2000.
The index ranges from 0 to 1, readings at 0.4 or higher are used
by analysts as a gauge of the potential for social disturbances.
- Pork Supply Shrinks to Lowest Since 1975 on Drought: Commodities. U.S. hog farmers are slaughtering
animals at the fastest pace since 2009 as a surge in feed costs
spurs the biggest losses in 14 years, signaling smaller herds
next year and a rebound in pork prices.
- Copper
Stockpiles in Bonded Shanghai Warehouses Seen at Record. Copper
inventories at bonded warehouses in Shanghai probably climbed to a
record as import premiums dropped to a four-month low, signaling demand
in China may not be improving as much as expected after a summer lull.
Reserves were 650,000 metric tons, according to the median of nine
estimates from traders, analysts and warehouse managers, compiled by
Bloomberg. Five said that this was a record. The amount compared with an
estimate of 550,000 tons by Macquarie Group Ltd. on Aug. 20.
- Financial Firms Post Fewer Job Openings in Global Economic Slump. Financial firms are advertising fewer open jobs worldwide as slower
economic growth in the United States and the European debt crisis put
pressure on bank revenue, according to data compiled by Bloomberg. Job postings for the sector dropped 21 percent to 7,540 in September
from a year earlier, according to Bloomberg Industries. That figure fell
17 percent to 1,373 in the U.S., 24 percent to 2,508 in Britain and 15
percent to 2,377 in Asia, the data show.
- Caterpillar(CAT) Cuts 2015 Outlook as Mining Spending Falls. Caterpillar Inc., the world’s
biggest construction and mining equipment maker, cut its
forecast for 2015 earnings after commodity producers reduced
capital expenditure. Caterpillar said profit will be $12 to $18 a share,
compared with a previous projection of $15 to $20. While a
global recession remains possible, Caterpillar is forecasting
moderate and “anemic” growth through 2015, Chairman and Chief
Executive Officer Doug Oberhelman said today in a presentation
to analysts at the MINExpo industry conference in Las Vegas.
Construction activity in emerging markets will probably show
modest improvements, he said. “We’ve seen a slowing in economic growth that was more
than we expected,” he said. “We think ‘13 could look like 2012
in terms of worldwide economic growth.’’ Oberhelman has bet on a continuation of growth in commodity
demand by buying mining-equipment maker Bucyrus International
Inc. for $8.6 billion last year and agreeing in November to
acquire ERA Mining Machinery Ltd. in China. His plans are coming
under pressure as mining companies cut capital expenditures
after economic expansion slowed in China, the world’s largest
user of coal and metals. Global mining capital expenditures will drop 14 percent
through 2014 from a peak of $136 billion this year, JPMorgan
Chase & Co. said in a Sept. 21 report. Caterpillar fell 2.2 percent to $88.87 at 6:30 p.m. after
the close of regular trading in New York.
- CFTC Will Give Banks 2 Minutes to Accept or Reject Cleared Swaps. Swaps dealers will have two minutes
to accept or reject trades that will be sent to clearinghouses
starting next month, the Commodity Futures Trading Commission
said in the most-detailed requirement about timing to date. The time allowed for trade approval will fall to one minute
90 days after the CFTC rules are published in the Federal
Register, according to a Sept. 21 e-mail sent by Ananda Radhakrishnan, director of the division of clearing and risk.
Banks including JPMorgan Chase & Co., Goldman Sachs Group Inc.,
Citigroup Inc. and Morgan Stanley have argued that the
technology to instantly verify the credit and risk allowance of
their customers doesn’t exist and asked the CFTC to reconsider.
Wall Street Journal:
- New Wave of Workers Tries Novel Approach: Save More. As older Americans lose jobs, lose homes and delay retirement, their
children are watching and reacting. Growing numbers of young Americans
are boosting savings, cutting spending and planning for retirement.
- Romney Attacks Obama on ‘Bumps in the Road’. Mitt Romney accused President Barack Obama
on Monday of downplaying recent foreign crises as he seeks to gain an
edge on foreign policy – a relative area of strength for the president. President Barack Obama was assessing his support for the governments that have sprung up in the wake of the Arab Spring when he argued in a 60 Minutes interview that aired Sunday that “I was pretty certain and continue to be pretty certain that there are going to be bumps in the road.” “Bumps in the road?” Mr. Romney said Monday as he sized up Mr. Obama’s
interview performance and rattled off examples of tumult abroad. “We had
an ambassador assassinated…twenty thousand people have been killed in
Syria. We have tumult in Pakistan and of course Iran is that much closer
to having the capacity to build a nuclear weapon. These are not bumps
in the road, these are human lives.”
- State of Europe's Banks: Safe and Stressed. Germany's Lenders Find Fortunes Tied
To Spanish Peers.
- Hon Hai Riot Shows Squeeze on Chinese Manufacturers.
-
The 10% President.
The annotated Obama: How 90% of the deficit becomes somebody else's
fault. A question raised by President Obama's immortal line on CBS's "60
Minutes" on Sunday—"I think that, you know, as President, I bear
responsibility for everything, to some degree"—is what that degree
really is. Maybe 70% or 80% of the buck stops with him? Or is it
halfsies? Nope. Now we know: It turns out the figure is 10%. The other
90% is somebody else's fault. This revelation came when Steve Croft
mentioned that the national
debt has climbed 60% on the President's watch. "Well, first of all,
Steve, I think it's important to understand the context here," Mr. Obama
replied. Fair enough, so here's his context in full, with our own
annotation and translation below:
CNBC:
Zero Hedge:
Business Insider:
NY Times:
-
Ex-Regulator Has Harsh Words for Bankers and Geithner.
Sheila C. Bair, who tormented Wall Street and its Washington allies as a
banking regulator, is taking a fresh swipe at her foes in retelling the
dark days of the financial crisis. In a book to be released on Tuesday,
the former chairwoman of the Federal Deposit Insurance Corporation
takes aim at the bankers she blamed for the crisis. She also
criticized fellow regulators, including current Treasury Secretary
Timothy F. Geithner, for their response to the problems. Ms. Bair
painted Mr. Geithner, the former head of the Federal Reserve Bank of New
York, as an apologist for Wall Street, opposing some postcrisis
reforms. She questioned whether his effort to inject billions of dollars
into nine big banks masked a rescue intended solely for Citigroup, a theory that other government officials have rejected.
Real Clear Politics:
Rasmussen Reports:
Reuters:
- Clinton reassures Egypt's Mursi on U.S. assistance. Secretary of State Hillary
Clinton reassured Egypt's new Islamist president on Monday that
the United States would forge ahead with plans to expand
economic assistance despite anti-American protests that cast new
shadows over U.S. engagement with the region. Clinton met Egyptian President Mohamed Mursi in New York,
where both are attending this week's U.N. General Assembly
meeting, and reinforced the Obama administration's continued
commitment to provide both military and economic aid for Cairo,
a senior State Department official said.
- Red Hat narrows full-year revenue forecast. Red Hat Inc, the world's largest
distributor of Linux operating software, reported a
lower-than-expected adjusted profit as costs rose, and lowered
the top end of its full-year revenue outlook on slow growth in
its services business.
Financial Times:
- Wall St engineering revival of CDS. Wall
Street financial engineers have devised a new way to combat declining
trading in the credit derivatives market – they are revamping an index
to add financial instruments that do not exist.
Telegraph:
Nikkei:
- Toyota
to Reduce Lexus Output Amid Unrest in China. The co. plans to reduce
production of Lexus vehicles for the China market by about 20% as early
as this month.
Evening Recommendations
CSFB:
- Rated (GHDX) Outperform, target $43.
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 137.0 +3.5 basis points.
- Asia Pacific Sovereign CDS Index 116.50 +5.5 basis points.
- FTSE-100 futures +.27%.
- S&P 500 futures +.28%.
- NASDAQ 100 futures +.28%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (FDS)/1.17
- (CCL)/1.43
- (JBL)/.58
- (CPRT)/.33
Economic Releases
9:00 am EST
- The S&P/CS 20 City MoM% SA for July is estimated to rise +.75% versus a +.94% in June.
10:00 am EST
- Consumer Confidence for September is estimated to rise to 63.2 versus 60.6 in August.
- The Richmond Fed Manufacturing Index for September is estimated to rise to -5 versus -9 in August.
- The House Price Index for July is estimated to rise +.6% versus a +.7% gain in June.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Plosser speaking, ECB's Draghi speaking, Germany inflation data,
weekly retail sales reports, 2Y T-Note auction and the (JOY) analyst day
could also impact trading today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by technology and commodity
shares in the region. I expect US stocks to open modestly higher
and to weaken into the afternoon, finishing modestly lower. The
Portfolio is 50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Slightly Lower
- Sector Performance: Mixed
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 14.06 +.57%
- ISE Sentiment Index 133.0 +23.15%
- Total Put/Call .79 -1.25%
- NYSE Arms 1.01 -35.65%
Credit Investor Angst:
- North American Investment Grade CDS Index 98.16 bps +1.86%
- European Financial Sector CDS Index 186.60 bps +2.11%
- Western Europe Sovereign Debt CDS Index 135.15 +2.23%
- Emerging Market CDS Index 218.76 +2.41%
- 2-Year Swap Spread 13.25 +.25 basis point
- TED Spread 27.0 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -22.0 -1.5 basis points
Economic Gauges:
- 3-Month T-Bill Yield .10% unch.
- Yield Curve 146.0 -3 basis points
- China Import Iron Ore Spot $103.70/Metric Tonne -2.54%
- Citi US Economic Surprise Index 20.6 unch.
- 10-Year TIPS Spread 2.46 -3 basis points
Overseas Futures:
- Nikkei Futures: Indicating -62 open in Japan
- DAX Futures: Indicating +19 open in Germany
Portfolio:
- Slightly Higher: On gains in my Medical sector longs and index hedges
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's
overall market action is mildly bearish as the
S&P 500 trades slightly lower on rising global growth fears, high food/energy prices,
earnings worries, growing Mid-east unrest, increasing China/Japan
tensions, US "fiscal cliff" worries and tech/energy sector weakness. On
the positive side, Road & Rail and Utility shares are
especially strong, rising more than +.75%. The Transports have traded well throughout the day. The UBS-Bloomberg Ag Spot
Index is down -.5%, Gold is down -.5% and Oil is down -1.2%. Brazil is +.8% higher on the day. On
the negative side, Coal, Alt Energy, Oil Service, Computer,
Software, Semi, Biotech and Homebuilding shares are especially weak,
falling more than
-1.25%. Tech and Energy shares have traded poorly throughout the day.
Lumber is falling -1.0 and Copper is down -1.3%. Major Asian indices were mostly lower overnight, led down by a -.5% decline in Australia. The Shanghai Comp(-7.6% ytd)
opened at another new multi-year low, but rallied modestly into the
close to finish +.3% higher. Major European indices are lower today, led
down by a -1.2% decline in Spain. The Bloomberg European Bank/Financial
Services Index is -.56% lower. The Germany sovereign cds is jumping +5.9% to 49.79 bps, the France sovereign cds is up +2.9% to 108.0 bps(+12.0% in 5 days), the Japan sovereign cds is up +3.7% to 86.77 bps(+27.6% in 5 days), the Russia sovereign cds is surging +6.2% to 149.87 bps(+15.4% in 5 days), the Saudi sovereign cds is gaining +4.8% to 90.45 bps, the Israel sovereign cds is up +2.5% to 147.99 bps(+13.6% in 5 days)
and the Brazil sovereign cds is up +2.2% to 107.31 bps. Moreover, the
European Investment Grade CDS Index is gaining +3.0% to 130.47 bps, the
Asia Pac Sovereign CDS Index is jumping +4.8% to 116.46 bps and the
Italian/German 10Y Yld Spread is up +1.1% to 349.11 bps. The UBS/Bloomberg Ag Spot Index is up +22.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -42.7% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index
also continues to trend lower despite the recent bounce. As well,
copper and lumber continue to trade poorly given equity investor
perceptions that the Eurozone has successfully kicked-the-can, housing
has hit a major bottom and global central bank stimuli will boost
economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.5%. The Philly Fed ADS Real-Time Business Conditions Index has shown meaningful deceleration since early July. Moreover,
the weekly MBA Home Purchase Applications Index has been around the
same level since May 2010 despite investor perceptions of a big
improvement in the nationwide housing market. The Baltic Dry Index has
plunged around -65.0% from its Oct. 14th high and is now down around
-55.0% ytd. Shanghai Copper Inventories have risen +360.0% ytd. Oil tanker rates have plunged, with the benchmark Middle East-to-US voyage down to 27.50 industry-standard worldscale points, which is near the lowest since May, 2009.
The 10Y T-Note continues to trade too well with the yield falling -4
bps to 1.71%. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro
backdrop. It remains unclear to me whether or not Germany will
destroy its own balance sheet or allow the ECB to monetize debt in a
major way in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Massive tax hikes and spending cuts have still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades over the intermediate-term. I continue to believe that China's problems are much larger than commonly perceived
and cannot be solved with another massive stimulus package given their
real estate bubble, rising food prices/labor costs, massive
overcapacity in certain key parts of the economy and growing bad loans
problem. Little being done by global central bankers will actually boost global economic growth to an extent that overcomes the growing
macro headwinds over the intermediate-term, in my opinion. Over the intermediate-term the Fed's recklessness
greatly increases the chances of hard-landings in key emerging markets
and of a serious global stock swoon, in my opinion. Moreover,
uncertainty surrounding the effects on business of Obamacare, the "US
fiscal cliff" and the election outcome uncertainty will likely become
more and more of a focus for US investors into the fourth quarter. The Mid-east continues to unravel at an alarming rate.
The quality of the stock rally off the June lows remains poor as
breadth, volume, leadership, lack of big volume/gainers and
copper/lumber/transports relative weakness all continue to be concerns. Thus,
recent market p/e multiple expansion on global central bank
stimulus/action hopes, is creating an unstable situation for equities,
which could become a big problem this fall unless a significant macro
catalyst materializes soon. Google(GOOG) is hitting a new all-time
high today. While the stock is getting too frothy and extended
short-term, I still expect the shares to outperform over the
intermediate-term. Long GOOG. For this year's equity advance to
regain
traction, I would expect to see further European credit gauge
improvement, a subsiding of hard-landing fears in key emerging markets,
a rising 10-year yield, better volume, stable-to-lower food/energy
prices, a US "fiscal cliff" solution, a calming in Mid-east and
China/Japan tensions and higher-quality stock market leadership. I
expect US stocks to trade modestly lower into the close from
current levels on rising global growth fears, earnings worries, rising
Japan/China/Mideast tensions, quarter-end profit-taking, more shorting,
technical selling, tech/energy sector weakness and US "fiscal cliff"
concerns.
