North American Investment Grade CDS Index 85.18 +.04%
European Financial Sector CDS Index 152.60 bps -4.1%
Western Europe Sovereign Debt CDS Index 204.83 bps unch.
Emerging Market CDS Index 200.28 -1.07%
2-Year Swap Spread 20.0 +1 bp
TED Spread 18.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .12% +1 bp
Yield Curve 270.0 -1 bp
China Import Iron Ore Spot $170.10/Metric Tonne unch.
Citi US Economic Surprise Index +14.60 -.1 point
10-Year TIPS Spread 2.28% -1 bp
Overseas Futures:
Nikkei Futures: Indicating +2 open in Japan
DAX Futures: Indicating +13 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical and Ag long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite recent stock gains, some weakness in European equities and China inflation worries. On the positive side, Gaming, Oil Service, Alt Energy, Ag, Telecom, Wireless, I-Banking, HMO, Homebuilding and Road & Rail shares are especially strong, rising more than .5%. Cyclicals are outperforming. Copper is jumping another +1.74% and the S&P GSCI Ag Spot Index is rising +2.28%. The 10-year yield is falling -7 bps to 3.29% despite recent positive economic data, the rise in commodities and "hot" prices paid readings. Put/call readings for the broad market are showing more bearishness today, which is a positive. The Shanghai Composite surged +1.76% last night, finishing at session highs, and is now back above its 200-day moving average. The Belgium sovereign cds is falling -3.17% to 217.93 bps and the UK sovereign cds is declining -5.57% to 72.41 bps, which are also positives. On the negative side, Education and Internet shares are under mild pressure, falling more than .5%. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is right at a record high, despite the recent bounce in the euro currency. The broad market continues to trade in a healthy fashion as it grinds slowly higher and then consolidates. One of my longs, (AAPL), is resting after its recent run to record highs and +52.8% gain YTD. I still see further significant upside in the shares from current levels longer-term and expect the stock to strongly outperform the S&P 500 again next year. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, short-covering, technical buying, lower long-term rates, less financial sector pessimism, more economic optimism, buyout speculation and investment manager performance angst.
Credit-Default Swaps Little Changed on Last Trading Day of 2010. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.1 basis point to a mid-price of 85.2 basis points as of 10:49 a.m. in New York, according to index administrator Markit Group Ltd. The index, which typically rises as investor confidence deteriorates and falls as it improves, has declined from 99.4 basis points on Nov. 30.
Corn, Soybean Prices Head for Best Second-Half Performance in 50 Years. Corn and soybeans rose, heading for their best second-half performances in at least five decades, as stockpiles tumbled and adverse weather threatened crops in South America. U.S. corn inventories before next year’s harvest will decline to the lowest since 1996 and global consumption will outpace supplies for a second year in the season ending Aug. 31, U.S. Department of Agriculture data show. “Damage is occurring daily and it is irreversible,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “These prices have not slowed demand.”
Copper Advances to Record on Speculation Supply Shortage Poised to Worsen. Copper futures rose to a record for the fourth time this week as speculation heightened that a supply deficit will widen as China, the world’s biggest consumer, leads a rebound in demand for industrial metals. The price reached an all-time high of $4.432 a pound as the global economy recovered from its deepest recession since World War II. Supplies of copper, used in wiring and pipes, will lag behind demand by 825,000 metric tons next year, almost double this year’s deficit of 449,000 tons, Barclays Capital says.
Cotton Futures Poised for Biggest Yearly Gain Since 1973 on China Demand. Cotton rose, heading for the biggest annual gain since 1973, as inventories plunged, adverse weather damaged global crops and demand surged in China, the world’s biggest user. Stockpiles monitored by ICE Futures U.S. tumbled 72 percent in 2010, the biggest annual decline since at least 2003, when the data begins.
CVS(CVS) to Buy Universal American Unit for $1.25 Billion. CVS Caremark Corp. agreed to buy the Medicare Part D unit of Universal American Financial Corp. for about $1.25 billion, more than doubling the size of its program after pharmacy-benefits management sales fell for two quarters.
Wall Street Journal:
Portugal Confident on Debt Program. Portugal has the means to resolve its financing problems through ambitious targets to cut public debt and to put public finances under control, the country's Minister of the Presidency Pedro Silva Pereira said Thursday. "We are confident in the capacity of the Portuguese economy to confront the current situation,"Mr. Pereira told reporters after a cabinet meeting, rejecting any notion that the country may be forced to seek European Union aid early next year, as many economists fear.
Debunking Krugman(Again): On The Shift From Net to Gross Income Tax Basis. It seems anywhere one looks there days, one reads a refutation of Paul Krugman's tortured "economist" logic. Lately, the NYTer has fallen into the crosshairs of many due to his contention that currently taxes, based on some chart which the Nobelist probably mislabeled again, are at 20th century lows. Of course, cherrypicking data that fits the theory is precisely what economists do. Which is why Krugman may be excused for missing out on a trend so subversive that we have seen it only mentioned by tax attorneys at Weil Gotshal: namely the gradual transition in the definition of taxable income from a "net" to a "gross" tax basis. As Weil's Kimberly Blanchard explains:
High IPO Fees Weigh on U.S. Firms, Study Finds. American companies could save more than $1 billion a year if banks charged the same fees for initial public offerings as banks do in Europe, according to a new study by three British academics.
E.P.A. Limit on Gases to Pose Risk to Obama and Congress. With the federal government set to regulate climate-altering gases from factories and power plants for the first time, the Obama administration and the new Congress are headed for a clash that carries substantial risks for both sides. “These are hand grenades, and the pins have been pulled,” said William K. Reilly, administrator of the environmental agency under the first President George Bush. He said that the agency was wedged between a hostile Congress and the mandates of the law, with little room to maneuver.
Washington Post:
Government by Regulation. Shhh. Obama knows he has only so many years to change the country. In his first two, he achieved much: the first stimulus, Obamacare and financial regulation. For the next two, however, the Republican House will prevent any repetition of that. Obama's agenda will therefore have to be advanced by the more subterranean means of rule-by-regulation. But this must simultaneously be mixed with ostentatious displays of legislative bipartisanship (e.g., the lame-duck tax-cut deal) in order to pull off the (apparent) centrist repositioning required for reelection. This, in turn, would grant Obama four more years when, freed from the need for pretense, he can reassert himself ideologically and complete the social-democratic transformation - begun Jan. 20, 2009; derailed Nov. 2, 2010 - that is the mission of his presidency.
Boy Genius Report:
Citibank(C): Apple's(AAPL) App Store Will Generate $2 Billion in 2011. And if research firm Gartner’s forecasts are accurate, that number could be low. Gartner believes the global app market in 2010 totaled $4 billion, and that revenues will climb to a staggering $27 billion over the next two years.
Climate PR Effort Heats Up. Hey America! Are you ready to get wonky on global warming? After a year that started with fallout from the “Climategate” e-mail release, saw the cap-and-trade bill die in Congress, and ended with a gang of Republican climate skeptics winning House and Senate seats, global warming experts are going back to basics.
Environmentalists, scientists and lawmakers have renewed public relations efforts to put global warming plainly before Americans' eyes. "Folks are enraged about this, rightly so, and are looking for ways to educate," said Peter Frumhoff, director of science and policy at the Union of Concerned Scientists.
Reuters:
Molycorp(MCP) In Talks With More JV Partners: CEO. The top executive of rare earth mining company Molycorp Inc (MCP.N) said on Thursday his company is in discussions with a number of potential joint venture partners and customers scrambling to find other suppliers of the critical minerals in the wake of China's supply cut. In an interview with Reuters, Molycorp Chief Executive Mark Smith said the company was "absolutely" in negotiations to reach deals similar to the ones it announced earlier this month with Hitachi Metals Ltd (5486.T) and Sumitomo Corp (8053.T).
Greece in Talks on Extending Debt Repayment. Greece is in talks with commercial banks on extending the repayment of its outstanding debt, in line with a similar plan to stretch out paying back its EU/IMF bailout, an Athens weekly reported on Friday.
Global Stock Fund Inflows Gain, Bonds Slow - EPFR. Money flows to global equity and other stock funds accelerated during the fourth quarter, signaling a possible twist in 2011 from the record investments made in bond portfolios over the last year, according to a report published by EPFR Global on Friday.
Hedge Funds Offered Weak Returns in 2010. Hedge funds often claim to offer strong returns that are not correlated with broader markets, but in 2010 many failed on both of those counts. That failure came in large part because hedge funds cannot make as many bets with borrowed money, analysts said. Hedge funds on average returned just 4.52 percent this year to December 28, according to Hedge Fund Research's HFRX index. That is short of the FTSE 100's .FTSE 10.5 percent jump or the Standard & Poor's 500 Index .SPX 12.7 percent rise.
Blockbuster Deal Coming to IMAX. The curtain on a mergers and acquisitions boom could go up early in 2011. Wall Street and IMAX could light the blue touch paper because red-hot rumours suggest that the giant screen movie operator is attracting the admiring glances of Sony Corporation. Whispers that the Japanese multinational conglomerate is prepared to pay north of $40 a share lifted IMAX stock $0.62 to $26.23 in early trade yesterday.
Kathimerini:
Greece plans to gradually reduce the size of the public sector by 30%, starting with the redeployment of tens of thousands of state employees, who will change roles and departments in the first six months of 2011. The transfers, part of an efficiency drive, will affect workers in state-owned enterprises as well as those employed directly by the state.
DigiTimes:
Solar Cell Spot Prices Continue Slide in December. Solar cell spot prices have slid to US$1.20-1.25/W in December 2010, down from a peak of US$1.40-1.43/W in November, according to industry sources. Prices continued to be dragged down by seasonality and new capacity at suppliers. The downward price trend will likely hurt revenues performance of solar cell companies in December, the sources claimed. Some unspecified solar cell makers have admitted that December revenues will not be able to remain at high levels, due to falling demand and prices. They expect to manage single-digit drops sequentially through effective quote reductions.
Corporate Bonds Signal Recovery as Junk Leads. Corporate bonds capped their best two-year global performance ever as signs of an accelerating U.S. recovery outweighed concern the European Union will fail to contain its fiscal crisis. Company debt returned 7.1 percent this year, following a record 16.3 percent in 2009, according to Bank of America Merrill Lynch index data. Bonds issued by the neediest borrowers led the rally, with junk-rated debt in the U.S. gaining 15 percent in 2010. “Corporate balance sheets are exceptionally strong,” said Mark Kiesel, the global head of corporate bond portfolio management at Newport Beach, California-based Pimco, manager of the world’s biggest bond fund. “That’s been the story of 2009 and 2010, the amazing deleveraging of corporate America and the free-cash-flow generation.” The extra-yield investors demand to own speculative-grade debt instead of Treasuries narrowed 107 basis points this year to 532 basis points, following a record 11.73 percentage points of tightening in 2009, Bank of America Merrill Lynch data show.
PIMCO to Pay $92 Million to Settle Futures Lawsuit. Pacific Investment Management Co., manager of the world’s biggest bond fund, agreed to pay $92 million to settle a private class action lawsuit that accused it of manipulating the price of Treasury futures contracts. Pimco, which manages about $1.2 trillion, was accused of cornering the market for contracts on the 10-year notes in May and June 2005 on the Chicago Board of Trade. The lawsuit, which sought as much as $600 million in damages, alleged that Pimco used its holdings to drive up the price for traders who had sold the securities short, betting they would fall.
New Drug Approvals Fall in 2010 as Safety Concerns Slow U.S. FDA Decisions. Twenty-one new drugs were approved in the U.S. this year, the fewest since 2007, as the Food and Drug Administration showed more willingness to delay or reject medicines with potential safety risks. The tally, compiled by Bloomberg from an FDA database, compares with 25 approvals last year and 24 in 2008, according to the FDA’s website. Nineteen new drugs were cleared in 2007, the fewest in 24 years.
China Ministries to Assess Foreign Property Investments, China Daily Says. China’s housing ministry will regularly assess foreign capital’s entry into the property market with the Ministry of Commerce and the nation’s currency regulator, the China Daily reported, citing unidentified industry people. China will enhance regulation of foreign institutions’ investment in the country’s property market and home purchases by non-Chinese citizens as part of its efforts to curb the inflow of hot money and tightening of the real estate sector, the China Daily reported, citing Jiang Weixin, minister of Housing and Urban-Rural Development.
China's Stocks Rise, Paring World's Worst Annual Loss in 2010. The Shanghai gauge’s advance for a third day narrowed its decline for the year to 15 percent, the worst performer among the 14 biggest world benchmark indexes, according to data compiled by Bloomberg. A measure tracking property developers, brokerages and banks in the CSI 300 Index fell 28 percent this year, the most among the 10 industry groups.
Bumpy Climb for Stocks in 2010. Investors Endured a Year of Wobbles and Worries, but Market Rewarded Them. Stocks turned in another solid year, the Dow Jones Industrial Average gaining nearly 11% and the Nasdaq doing better still.
Housing Pain Pits Neighbor Against Neighbor in Florida. Few things agitate Sid Schulman, who often shoots the breeze with other retirees and flirts with women friends at their condominium complex here. But it galls him when neighbors stop paying their mortgages and maintenance fees, and leave the cost of community upkeep to others.
Retailers Swipe at Credit-Card Plan. Fed Rule Would Restrict Credit Cards for Some Consumers; Women's Rights Issue. The Credit Card Act signed into law last year was supposed to stop financial institutions from sleazy antics. But instead, some retailers say, it may restrict stay-at-home moms. Dress Barn Inc., Home Depot Inc., Citigroup Inc. and other companies are urging the Federal Reserve to drop a proposed rule that would require credit-card issuers to consider only a borrower's "independent" income rather than household income. The new standard, which would apply to new credit-card accounts and requests to increase limits on existing accounts, could make it difficult for some customers to get credit on the spot, especially stay-at-home moms.
China Clamps Down on Internet-Phone Use: Report. Chinese regulators are clamping down on Internet telephony that isn't provided by one of the country's two state-owned telecommunications companies, a move that could make services like Skype SA unavailable in the world's most populous country, according to a report in The People's Daily on Thursday.
IBD:
Wave of Tablets Could Give Chipmaker ARM a Hand. At next week's Consumer Electronics Show, Microsoft (MSFT) is widely expected to announce its own tablet operating system to compete with Apple's (AAPL) iPad and other products that run on Google's (GOOG) Android operating system. Who might win in that fight? ARM Holdings (ARMH).
Google(GOOG): Your New Phone Carrier? Google has assembled all the pieces it needs to be a mobile provider like Verizon, AT&T (T, Fortune 500) or Sprint (S, Fortune 500).
USA Today:
Investors Are Beginning to Turn Away From Bonds, Embrace Stocks. It appears investors are beginning to get comfortable with risk again. Not only are they pulling money out of bond mutual funds at the fastest pace in two years, but they're slowly starting to embrace stocks again.
Skype Adds Video-Calling to iPhone App. Internet phone company Skype is bringing live video calls to iPhone and iPad screens in an aggressive bid to cash in on the popular devices and build momentum for its imminent public stock offering.
Medicare to Swell With Baby Boomer Onslaught. Baby Boomers are about to create a record population explosion in the nation's health care program for seniors. Starting on Saturday, Baby Boomers begin turning 65 and qualifying for Medicare — one every eight seconds. A record 2.8 million will qualify in 2011, rising to 4.2 million a year by 2030, projections show. In all, the government expects 76 million Boomers will age on to Medicare. Even factoring in deaths over that period, the program will grow from 47 million today to 80 million in 2030. At the same time, health care costs are projected to outpace inflation, and medical advances will extend lives, straining the program's finances. It's expected to cost $929 billion by 2020, an 80% increase over 10 years. The prospect of a growing senior population that's living longer and costing more is the biggest fiscal problem facing the government, budget and health experts say. It will put more pressure on President Obama and Congress to reduce Medicare benefits, increase co-payments or raise the qualifying age. "We're at the beginning of the age wave, which will bring a tsunami of spending associated with the Medicare program," says David Walker, a former U.S. comptroller general now heading the Comeback America Initiative, a fiscal watchdog group. "It serves to reinforce the need to reform existing entitlement programs and restructure existing health care promises in order to make them affordable and sustainable."
China Securities Journal:
China's first round of rare earth export quotas for next year were actually cut by about half from first round quotas for 2010, citing an official.
Evening Recommendations
None of note
Night Trading
Asian equity indices are -.50% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 103.0 -1.0 basis point.
Asia Pacific Sovereign CDS Index 103.0 -.5 basis point.
The Bloomberg FCI Monthly could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 85.15 -.36%
European Financial Sector CDS Index 159.19 bps +4.16%
Western Europe Sovereign Debt CDS Index 204.83 bps +1.28%
Emerging Market CDS Index 200.21 -1.68%
2-Year Swap Spread 19.0 unch.
TED Spread 19.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .11% -1 bp
Yield Curve 271.0 +1 bp
China Import Iron Ore Spot $170.10/Metric Tonne -.06%
Citi US Economic Surprise Index +14.70 +8.4 points
10-Year TIPS Spread 2.29% +1 bp
Overseas Futures:
Nikkei Futures: Indicating -28 open in Japan
DAX Futures: Indicating +13 open in Germany
Portfolio:
Slightly Higher: On gains in my Tech, Retail and Ag long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower despite recent stock gains, rising euro sovereign debt angst, weakness in European equities and China inflation worries. On the positive side, Education, Hospital, Disk Drive, Steel, Ag and Coal shares are especially strong, rising more than 1.0%. Small-Caps are also outperforming. Oil is lower despite a year-end short-covering rally in the euro and better US economic data. Moreover, the 10-year yield is stable despite the better economic data. Copper is rising another +1.46%. The AAII % Bulls fell to 51.61 this week, while the % Bears rose to 20.05, which is also a positive. On the negative side, Tobacco shares are under mild pressure, falling more than .5%. The Greece sovereign cds is climbing +2.97% to 1,065.30 bps. The Euro Financial Sector CDS Index remains at the highest level since mid-June and the Western Europe Sovereign CDS Index is making another new record high, which is a big negative. The broad market continues to trade in a healthy fashion as it grinds slowly higher and then consolidates. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, short-covering, technical buying, stable long-term rates, more economic optimism, buyout speculation and investment manager performance angst.
