Tuesday, July 05, 2011

Bear Radar


Style Underperformer:

  • Mid-Cap Value (-.60%)
Sector Underperformers:
  • 1) Oil Tankers -2.20% 2) Alt Energy -1.74% 3) Homebuilders -1.70%
Stocks Falling on Unusual Volume:
  • GIB, ALLT, VECO, NTCT, AEIS, RYAAY, AIXG, IDCC, JOE and OMG
Stocks With Unusual Put Option Activity:
  • 1) VMW 2) INFY 3) JOE 4) DO 5) SVM
Stocks With Most Negative News Mentions:
  • 1) DMND 2) GIS 3) BBBB 4) NTCT 5) COG
Charts:

Bull Radar


Style Outperformer:

  • Large-Cap Growth (+.10%)
Sector Outperformers:
  • 1) Gold & Silver +1.98% 2) Oil Service +.97% 3) Ag +.84%
Stocks Rising on Unusual Volume:
  • TGA, CWEI, SLW, AUY, BAS, BTI, PM, AAPL, CEVA, CCIX, BT, HDB, KLIC, BLUD, TRCR, ATHN, JVA, NFLX, GOOG, OYOG, CHKP, REDF, JAZZ, EZPW, BIDU, STNR, CHTR, OPEN, BJRI, APOL, SNDK, HRBN, AMN, SUG, AZZ, ZAGG, UCO, ACTV, CHTR and KRA
Stocks With Unusual Call Option Activity:
  • 1) NGD 2) TDC 3) TYC 4) BG 5) DELL
Stocks With Most Positive News Mentions:
  • 1) AAPL 2) NKE 3) GOOG 4) BA 5) DRI
Charts:

Tuesday Watch


Weekend Headlines

Bloomberg:

  • Euro Falls Versus Yen After S&P Says Greece May Be In 'Selective Default'. The euro weakened versus the yen after Standard & Poor’s said a debt-rollover plan for Greece may prompt a “selective default” rating for the country. “Sentiment was undermined with those S&P comments,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Markets are reluctant to aggressively sell the euro, though. We need to see what the other rating agencies are going to suggest.” The shared currency fell as much as 0.3 percent to 117.03 yen, before trading little changed at 117.45 yen as of 4:20 p.m. in New York.
  • Sovereign, Corporate Credit-Default Swap Indexes Rise in Europe. The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 3 basis points to 221 at 12 p.m. in London. An increase signals deteriorating perceptions of credit quality. Swaps on Greece climbed 14 basis points to 1,875, according to CMA. Contracts on Spain jumped 6 basis points to 263, Portugal increased 5 to 755 and Ireland rose 4.5 to 732.5, while Italy was 4 higher at 182 and Belgium was up 3 at 146. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings rose from a four week low, increasing 3 basis points to 387, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1 basis point to 104.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 4.5 basis points to 155 and the subordinated index climbed 7.5 to 279.5.
  • China Bank Outlook May Be Souring on Local Government Loans, Moody's Says. Chinese banks’ loans to local governments may be 3.5 trillion yuan ($540 billion) more than estimated and the outlook for the industry is potentially turning negative, Moody’s Investors Service said. An assessment of new data from agencies including China’s national audit office indicates “that the banks’ exposure to local government borrowers is greater than we anticipated,” Yvonne Zhang, a vice president at Moody’s, said in the report. The credit outlook for lenders is souring in the “apparent absence of a clear master plan to deal with this issue.” The report may stoke concerns that as much as 30 percent of the local government financing vehicles’ loans may sour and become the biggest contributor to banks’ bad debts. China’s audit office last week reported that local governments had 10.7 trillion yuan in liabilities at the end of last year with 79 percent being bank loans. China’s first assessment of such debt showed that 8 billion yuan is overdue, and companies are too often relying on government land sales to meet repayments, Auditor General Liu Jiayi said on June 27. Non-performing loans may reach as much as 12 percent of total credit, higher than its “base case” estimate of 5 percent to 8 percent, Moody’s estimates. Fitch Ratings lowered its outlook on China’s AA- long-term, local-currency rating to negative from stable on April 12 because of the risk the government would have to bail out banks. As much as 30 percent of loans to local government entities may go bad, accounting for the biggest source of banks’ non- performing assets, Standard & Poor’s said that month.
  • Greece's First Bailout Faces Scrutiny From Germany's Constitutional Court. Days after Greece passed a 78 billion-euro ($113 billion) austerity plan clearing the way for a second international rescue, Germany’s top judges are set to discuss the legality of the first bailout. Germany’s highest constitutional court will hear oral arguments tomorrow in three cases challenging the country’s role in the Greek bailout and the euro-area rescue fund last year. The cases were filed by academics and a lawmaker who have unsuccessfully turned to the court before to try to block Germany’s participation in European Union treaties. “The court has always been very critical on the European integration in its language -- only to be rather conciliatory when it comes to the practical results,” said Axel Kaemmerer, a professor at Bucerius Law School in Hamburg. “The judges may lift their fingers to admonish the government about red lines that cannot be crossed, but in the end it won’t rain on its parade.”
  • China Still Faces Inflationary Pressure, Central Bank Says. China still faces “large” inflationary pressure and the central bank will maintain a “prudent” monetary policy, the People’s Bank of China said today. “We must pay close attention to the latest international and domestic economic and financial trends and influences, and implement a prudent monetary policy,” the central bank said in a statement after a meeting of its monetary policy committee. Surging vegetable and pork prices, and higher wages and raw-material costs may have pushed consumer-price gains to an almost three year high in June. Inflation likely accelerated to 6.4 percent last month, a figure likely to prompt the fifth increase in interest rates since October, according to UBS AG China economist Wang Tao. China International Capital Corp. economists estimate prices may have jumped 6.2 percent in June compared with 5.5 percent in May that was the fastest in 34 months. In an article published today, central bank Governor Zhou Xiaochuan indicated that tackling inflation remains the government’s priority. He reiterated government pledges to improve the nation’s exchange-rate mechanism.
  • BlackRock's(BLK) Miller is Avoiding Buying Aussie Dollar as China Growth Cools. Australia’s dollar isn’t attractive after the currency climbed more against the greenback than any major counterpart in the past year, BlackRock Inc. said. The so-called Aussie has surged as the Reserve Bank of Australia raised interest rates to the highest in the developed world to curb price pressures amid demand from China for the country’s commodities. Chinese reports this month showed manufacturing growth slowed to the lowest level since February 2009 and services industries expanded at the slowest pace in four months in the Asian nation, Australia’s largest trading partner. Retail sales in Australia dropped in May, a report today showed. “You need to have a very strong bullish view of the global economy to want to stay in Aussie longs,” Stephen Miller, a managing director in Sydney at BlackRock, which oversees $3.7 trillion globally, said in a July 1 interview. “My view isn’t optimistic enough for me to want to get involved in the Aussie dollar.”
  • Funds Slash Bullish Commodity Bets to One-Year Low on Slow Growth Outlook. Funds reduced bullish bets on commodity prices to the lowest level in almost a year on speculation that slowing global growth will curb demand for metals, energy and grains. Speculators cut their net-long positions in 18 U.S. commodities by 15 percent to 958,309 futures and options contracts in the week ended June 28, government data compiled by Bloomberg show. That’s the lowest since the week ended July 13 last year. Declines were led by a 67 percent drop in holdings of soybean meal. Investors trimmed bets on silver by 26 percent, the most since May 2010. The Standard & Poor’s GSCI Index of 24 raw materials slumped 7.8 percent last quarter, the biggest such loss since 2008. China’s non-manufacturing industries expanded at the slowest pace in four months in June, adding to concerns that efforts to tame inflation are curbing growth in the world’s second-biggest economy and largest consumer of commodities. “You have slower imports and economic growth from China and other regions of the world, and then you have the threat of rising interest rates,” said Luis Rangel, a vice president at ICAP Futures LLC in Jersey City, New Jersey, who cited the end of the second round of quantitative easing, or QE2. “Those are the underlying factors that are slowing the commodity trend.”
  • Rice May Rally 56% as Pro-Thaksin Party Sweeps to Power in Thai Elections. Rice prices in Thailand, the biggest exporter, may rally 56 percent by yearend as the party that won parliamentary elections implements a policy to buy the crop from farmers above current rates, according to a survey. The export price may climb to $810 per metric ton by Dec. 31, according to a median forecast of six millers, exporters and traders today and yesterday, who commented after Pheu Thai won a majority in yesterday’s contest. Costlier rice from Thailand, which accounts for about 30 percent of worldwide shipments, may increase global food costs while making supplies from rival Vietnam more competitive. A Bloomberg survey last month, conducted during the campaign, suggested a gain to $750 per ton if Pheu Thai were to win. “It isn’t only Thai prices that will go up, the rest of the world will have to follow,” Mamadou Ciss, chief executive officer of Hermes Investments Pte, said from Geneva. The price may jump $100 within two months and peak at $700, said Ciss, who correctly predicted in 2006 that prices would double. Thai export prices are a benchmark for the industry. “Export prices will probably rise 10 percent in a month,” Wichai Srinawakul, vice president of the Thai Rice Mills Association, said from Nakhon Ratchasima province. “When its price-pledging scheme is implemented, it will boost the price further, probably to $830 per ton by the end of this year.”
  • St. Joe(JOE), Chairman Bruce Berkowitz Are Subject of Formal Probe by U.S. SEC. The U.S. Securities and Exchange Commission has started a formal investigation of St. Joe Co., Northern Florida’s largest landowner, and Chairman Bruce Berkowitz, its biggest shareholder, the company said. The probe “covers a variety of matters” including securities-law anti-fraud provisions for corporate officers and board members, internal controls and financial reports, the Watersound, Florida-based company said in a filing with the SEC made after the close of regular U.S. trading yesterday. “The order designates officers of the SEC to take the testimony of the company and third parties with respect to any or all of these matters,” according to the filing. St. Joe said it’s cooperating with the agency.
  • Komatsu Japan Sales Gain on Rebuilding as China Demand Falls. Komatsu Ltd. (6301), the world’s second- largest construction machinery maker, said Japan’s bid to rebuild the nation from its worst postwar disaster is spurring demand at home amid slumping sales in China, its biggest market. Japanese orders increased more than 30 percent in April- June from a year earlier, Chief Executive Officer Kunio Noji said in an interview at the company’s Tokyo headquarters. Sales in China, which declined about 40 percent in the past two months, may not revive until the Lunar New Year in January, the beginning of the nation’s peak demand season, he said.
  • Could Italy Be Next European Domino to Fall?: Simon Johnson. In recent days, Greece’s parliament adopted new austerity measures and Europe’s finance ministers approved another round of Greek loans. So the European debt crisis is under control, right? Probably not. One obvious reason is Standard & Poor’s July 4 threat to declare a default if banks roll over Greek government bonds coming due over the next year. That could force everyone back to the drawing board. Less obvious, but no less worrisome, is Italy. With a precarious fiscal picture, it could be the next to come under pressure. And this time, U.S. banks are in the line of fire, with about $35 billion in loans to Italy and potentially more exposure to risk through derivatives markets.
Wall Street Journal:
  • Tepco Resumes Cooling Plan at Fukushima Plant. The operator of the crippled Fukushima Daiichi nuclear-power plant said on Sunday that it has resumed the use of contaminated water to cool the reactor cores, a week after its first attempt was suspended due to leaks. If successful, the use of recycled water to cool the reactors will solve one of the major complications as workers struggle to bring the complex under control. Until now, they have been using fresh water from an outside source to cool the reactors, creating even more irradiated water, which then requires storage or disposal.
  • Hedge Funds Fall Again In June, Led by Stock, Macro Strategies. Returns at most hedge funds fell again in June, bringing average losses for the first half to around 2%, with systematic macro funds and stock-focused funds turning in the worst performance. Hedge Fund Research Inc.'s HFRX Global Hedge Fund Index ended the month down 1.59%, for a 2.12% year-to-date fall, marking a second losing month after May's 1.39% decline. The fall came as investors fretted over the health of the U.S. and Chinese economies and amid the latest round of the euro-zone's debt crisis, making for choppy stock markets and declines in most commodities. Though stocks rallied strongly last week as a potential default by Greece was averted, the HFRX Equity Hedge Index comprising funds that take long and short bets on stocks dropped 2.36% in the month, for an 8.32% six-month loss. That sharp decline in the year will likely concern investors who typically expect these kinds of hedge funds to outperform stock indexes. While the monthly decline was on par with losses in broader stock indexes such as the S&P 500, down 1.8% in June, U.S. stock market indexes are up by around 5% to 7% for the year. The MSCI All-Country World Index of shares in 45 countries fell 1.5% in June, and is up around 3% this year. It was also a volatile month for systematic trading funds, which aim to latch onto trends in the direction of interest rates, currencies and commodities, as well as stocks. The HFRX Systematic Diversified Index lost 3.49% in June and is off 6.4% this year. Oil slid about 8% in June, gold fell and commodity indexes generally posted losses, while the euro defied bears by rising against the dollar.
  • Sharp to Further Localize Solar Panel Production Overseas. The president of the Japanese electronics maker Sharp Corp. (6753.TO) said Monday it will localize more of its solar panel production outside the country, as the strong yen makes exports too expensive while fast-growing Chinese makers create a global inventory glut.
  • Subprime Mortgage Index Soars as N.Y. Fed Halts Auction. A bellwether index of subprime mortgage bonds posted its sharpest weekly gain since September 2009 after the Federal Reserve Bank of New York suspended auctions from its Maiden Lane II portfolio of mortgage securities acquired in the American International Group Inc. bailout. A slice of the ABX derivatives index that tracks highly rated subprime mortgages rose 2.38 cents on the dollar to 52.73 cents, the highest since May 27 and up 14% from a week ago, according to data provider Markit.
  • Credit Swaps on Spain, Italy Are Leading Contagion Indicators - Markit. Default swaps on Spain and Italy have become a key barometer of the European debt crisis and potential contagion stemming from the region, according to a summary of swaps-market activity released in London on Monday by data provider Markit. Italy occupied the top spot in a ranking of liquidity--or depth of trading--in the sovereign credit default swaps market over the most recent quarter, with a net $23.7 billion (EUR16.3 billion) of CDS outstanding.
  • Cisco(CSCO) Poised to Help China Keep an Eye on Its Citizens. Western companies including Cisco Systems Inc. are poised to help build an ambitious new surveillance project in China—a citywide network of as many as 500,000 cameras that officials say will prevent crime but that human-rights advocates warn could target political dissent.
  • Inside the Disappointing Recovery. Two years ago, officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since the economic disaster of the 1930s.
  • Commodities Beckon Banks. About 600 miles from Wall Street, Goldman Sachs Group Inc.(GS) employees are busy doing deals. But instead of a sleek office tower, they work in a rundown warehouse deep in an industrial section of Detroit. And rather than trading in stocks or bonds, they move metal—lots of metal. Goldman's warehouse on the banks of the Detroit River is one of more than 100 storage facilities controlled by the giant securities firm around the world. The warehouses are part of Wall Street's effort to forge a new frontier in the commodities markets: warehousing metal.
  • America's Troubling Investment Gap by David Malpass and Stephen Moore. For the first time in decades, America is on net losing, not attracting, growth capital.
NY Times:
  • U.S. Expands Its Drone War Into Somalia. The clandestine American military campaign to combat Al Qaeda’s franchise in Yemen is expanding to fight the Islamist militancy in Somalia, as new evidence indicates that insurgents in the two countries are forging closer ties and possibly plotting attacks against the United States, American officials say.
  • Big Banks Easing Terms on Loans Deemed as Risks. As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked. Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.
  • Taking Lead, Iraqis Hope U.S. Special Operations Commandos Stay. Americans say the Iraqi special operations force, which was deliberately balanced with the country’s main sects and ethnicities, is more capable than the Iraqi Army and may be critical in preventing a resilient insurgency from exploding into a sectarian civil war. Even as few Iraqi politicians are willing to admit publicly that they need American help, Iraqi soldiers say that American troops must stay longer to continue training and advising. “The Americans need to stay because we don’t have control over our borders,” said Maj. Gen. Fadhel al-Barwari, commander of the Iraq Special Operations Force.
  • World Bank Is Opening Its Treasure Chest of Data.
  • Hedge Funds Seeking Gains in Greek Crisis. As Greece’s fiscal turmoil has rattled global equity, bond and currency markets, hedge funds have scrambled to figure out how to make the big score. Last week, financial markets rebounded sharply on news that the Greek Parliament had approved a tough austerity package, a move that staved off a default and was a condition for further international assistance. Over the weekend, European ministers agreed to finance Greece through the summer but deferred crucial decisions on a second bailout.
NY Post:
  • 'FarmVille' Bet Brings Pincus Billions. Zynga CEO Mark Pincus once lamented he was not on Silicon Valley's A-list -- and he just may be right. After Zynga moved yesterday to go public, it is clear he is definitely on the B-list, as in Billionaires List. The social gaming company will trade shares publicly within months, and when it does, Pincus could be worth about $3.6 billion.
Business Insider:
Zero Hedge:
LA Times:
Pittsburgh Post-Gazette:
  • Kings and Queens of Shale: Who's Benefiting from Marcellus Shale Drilling? The effects of Marcellus Shale drilling on local communities aren't always easy to pin down, but some business owners say they don't need spreadsheets or financial statements to gauge the impact. They are the kings and queens of Marcellus Shale: the people who have benefited most either through property deals, business opportunities, or just plain hard work.
Boston Herald:
  • Feds, Massachusetts Bank New Solar Firm Despite Evergreen Solar(ESLR) Debacle. Months after Evergreen Solar closed its Bay State plant and moved manufacturing to China — taking with it roughly $45 million in Massachusetts taxpayer subsidies — federal and state officials are preparing to gamble on the promise of another pioneer of photovoltaic technology, to the tune of $123.4 million. Like Evergreen, Lexington-based 1366 Technologies produces a key component of solar panels — wafers made from a purified form of silicon. Despite the embarrassing failure of the state’s investment in Evergreen, Gov. Deval Patrick is not backing off his support of emerging solar companies, including 1366.
naturenews:
Engadget:
Politico:
  • Bill Clinton Calls for Corporate Tax Cut. President Bill Clinton says the nation’s corporate tax rate is “uncompetitive,” and called for a lower rate as part of a “mega-deal” to raise the debt ceiling. “When I was president, we raised the corporate income-tax rates on corporations that made over $10 million [a year],” the former president told the Aspen Ideas Festival on Saturday evening. “It made sense when I did it. It doesn’t make sense anymore – we’ve got an uncompetitive rate. We tax at 35 percent of income, although we only take about 23 percent. So, we SHOULD cut the rate to 25 percent, or whatever’s competitive, and eliminate a lot of the deductions so that we still get a FAIR amount, and there’s not so much variance in what the corporations pay.
Reuters:
  • The China Banking Regulatory Commission ordered banks to investigate deals linked to discounted commercial bills after finding that lenders in central Henan province were keeping some loans off their books, citing two people familiar with the situation.
Financial Times:
  • EU Sees Greek Economy Shrinking 3.75% This Year. Greece's economy is likely to stay in recession this year, shrinking by 3.75%, contrary to the earlier expectations that it would return to growth in the second half, according to a quarterly report by the European Commission and the European Central Bank.
  • One in 10 European Insurers Fails Test. One in 10 European insurance companies failed to cope with a series of damaging financial market and economic shocks under stress tests carried out in recent weeks. However, European regulators said the industry’s finances were robust overall and that a shock applied to sovereign bond yields in Europe would cause problems for just 5 per cent of companies. They did not test for a default by Greece or any other peripheral country.
Boersen-Zeitung:
  • Greece's efforts to reduce its debt may not be enough to avert a default, Swiss Reinsurance Co. Chairman Walter Kielholz said in an interview. "The measures are necessary but they are probably not sufficient," Kielholz was quoted as saying. "Certain market participants are currently still assuming a partial default, which is reflected in the prices for Greek government bonds."
Shanghai Daily:
  • New Home Sales Decline .4% in City. NEW home sales stood above 200,000 square meters in Shanghai for the second week with buying sentiment for top-end houses remaining strong. Sales of new residential properties, excluding those built under the city's affordable housing programs, dipped 0.4 percent to 230,400 square meters last week, Shanghai Deovolente Realty Co said yesterday. The average price for new homes, meanwhile, climbed 5.9 percent to 22,500 yuan (US$3,477) per square meter last week. "It was the first time since February that the weekly transaction volume of new homes stayed above 200,000 square meters for two consecutive weeks," said Lu Qilin, a researcher at Deovolente Realty
China Business News:
  • China's State Council will hold a meeting this month to discuss economic policies for the second half of this year.
Financial News:
  • China should control fiscal spending to help curb inflation, Zhang Yuanjun, a deputy head of the central bank's Harbin branch, wrote in a commentary. The country should stop construction projects that have high costs and low investment returns, Zhang wrote.
China News Service:
  • Beijing's average existing home prices rose 23% to 24,100 yuan per square meter in the first half of the year from a year earlier, citing property agent B.A. Consulting. Sales of existing homes in the city fell 34.5% in the first half from the same period a year earlier to 67,962 units, with June sales dropping to the lowest level in almost 29 months.
Hexun.com:
  • China central bank adviser Li Daokui said the country should consider raising interest rates, especially the deposit rate, to curb inflation, according to a Faren magazine report. High-speed railways may lead to rising real estate prices in second- and third-tier cities, he said.
Weekend Recommendations
Barron's:
  • Made negative comments on (UA) and (S).
Night Trading
  • Asian indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 107.5 -1.5 basis points.
  • Asia Pacific Sovereign CDS Index 114.75 -4.0 basis points.
  • S&P 500 futures -.16%.
  • NASDAQ 100 futures +.22%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
10:00 am
  • Factory Orders for May are estimated to rise +1.0% versus a -1.2% decline in April.
Upcoming Splits
  • (TMK) 3-for-2
  • (PLCM) 2-for1
  • (CPL) 3-for-1
Other Potential Market Movers
  • The 3-Month/6-Month T-Bill Auctions could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial 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 75% net long heading into the week.

Sunday, July 03, 2011

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Tuesday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Mideast unrest, US debt ceiling worries, more shorting, global growth concerns, profit-taking and emerging market inflation fears. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Friday, July 01, 2011

Bull Radar


Style Outperformer:

  • Small-Cap Value (+1.21%)
Sector Outperformers:
  • 1) Education +3.57% 2) Homebuilders +1.88% 3) Gaming +1.83%
Stocks Rising on Unusual Volume:
  • ACTG, CRUS, BCS, AIXG, GGAL, STD, MMM, CCI, BBBB, IDCC, MOLXA, APOL, DGII, JACK, RENT, SPRD, NTAP, CCIH, PPDI, DNDN, HANS, JVA, WIRE, HTWR, CSII, ISCA, GOOG, OSK, AZZ, DRI, KBH, VHC, BID, EAT, TIVO and JACK
Stocks With Unusual Call Option Activity:
  • 1) AMT 2) LLY 3) HOG 4) DNDN 5) SODA
Stocks With Most Positive News Mentions:
  • 1) APOL 2) DNDN 3) AAPL 4) JPM 5) MSFT
Charts:

Friday Watch


Evening Headlines


Bloomberg:

  • China's Manufacturing Grows Least in 28 Months as Inflation Campaign Bites. A Chinese manufacturing index fell to the lowest level since February 2009, signaling that the world’s second-biggest economy is cooling as export demand weakens and the government reins in credit to control inflation. The Purchasing Managers’ Index was at 50.9 in June from 52 in May, the China Federation of Logistics and Purchasing said in an e-mailed statement today. The median forecast in a Bloomberg News survey of 13 economists was 51.5. The report “will further depress markets which have been increasingly worried about a hard-landing in China,” said Lu Ting, a Hong Kong-based economist at Bank of America Merrill Lynch in Hong Kong.
  • U.S. Reserve Oil May Be Stored by Traders. Some of the oil being released from the U.S. Strategic Petroleum Reserve to bring down prices may be held by traders for later sale rather than sent directly to refiners for processing into gasoline or other fuels. The U.S. Energy Department is offering 30 million barrels of light, low-sulfur crude for sale, half of the 60 million barrels to be released by International Energy Agency member nations to make up for the loss of Libyan oil exports during the civil conflict. Bids for the oil were due by 1 p.m. central time yesterday. “The DOE has no preference for bids from refiners versus traders and both have participated significantly in past sales,” an official from the Energy Department wrote in an e- mail. “There is nothing to stop buyers from putting the oil they have purchased into their own storage.” Traders can profit from buying the oil and selling more valuable contracts for later delivery, if the SPR oil is sold at a big enough discount to cover storage costs. Representatives of trading companies including JPMorgan Chase & Co., Morgan Stanley (MS), Hess Trading Company and Koch Supply & Trading LP joined Valero Energy Corp. (VLO) and Statoil ASA in questioning Energy Department officials June 28 about shipping options and requests for waivers of the Jones Act. The Jones Act restricts the shipment of goods between U.S. ports to American-flagged vessels. Most oil is shipped on foreign-flagged vessels.
  • Geithner to Consider Leaving After Debt Debate. Treasury Secretary Timothy F. Geithner has signaled to White House officials that he’s considering leaving the administration after President Barack Obama reaches an agreement with Congress to raise the federal debt limit, according to three people familiar with the matter. Geithner said speculation about his departure was being driven by his decision to commute to New York so his son can finish his final year of high school there. “I live for this work,” he said at the Clinton Global Initiative in Chicago. “It’s the only thing I’ve ever done. I believe in it. We have a lot of challenges as a country. I’m going to be doing it for the foreseeable future.”
  • NY Fed Halts Controversial AIG Bond Auctions. The Federal Reserve Bank of New York is halting its sales of mortgage bonds acquired in the rescue of American International Group Inc. (AIG) after coming under criticism that auctions were damaging credit markets. “Given prevailing market conditions” for residential mortgage-backed securities, “we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public,” Jack Gutt, a New York Fed spokesman, said in an e-mail. The New York Fed began unloading the bonds piecemeal after rejecting a $15.7 billion bid from New York-based AIG for the entire pool in March. As traders blamed declines in debt from high-yield bonds to subprime-mortgage securities on the sales, the bank slowed their pace. Its last auction ended June 9. “On the surface, this is a positive because these sales will not weigh down the market,” Jason Weiner, a money manager who helps oversee $18.6 billion in fixed-income assets at M&I Investment Management Corp. in Milwaukee, said in an e-mail. “Longer term it will loom over the market until it clears.”
  • How Fannie's Silence Opened Way to $3 Billion Fraud.
  • Icahn Seeks Talks With Armored-Truck Maker Oshkosh(OSK) After Reporting Stake. Billionaire investor Carl Icahn in a filing said he owned 9.5 percent of Oshkosh Corp. (OSK), the U.S. military’s biggest supplier of armored trucks, and sought talks with the company to enhance shareholder value. Following Icahn’s announcement, Oshkosh rose 8.3 percent in New York trading after closing at $28.94.
  • Justice Department Orders Criminal Probe of Detainees' Deaths in CIA Case. Attorney General Eric Holder ordered a criminal investigation into the deaths of two prisoners in U.S. custody overseas following a U.S. Justice Department review of CIA interrogations. The department determined that an expanded criminal investigation into allegations of CIA mistreatment of other detainees isn’t warranted, Holder said in a statement today. The probe is examining the 2002 death of Gul Rahman in a facility in Afghanistan and 2003 death of Manadel al-Jamadi at the Abu Ghraib prison in Iraq, according to a person familiar with the matter who spoke on condition of anonymity and wasn’t authorized to comment publicly.
  • Goldman Sachs'(GS) Connections With Central Banks Reach Ever Deeper After Hire. The revolving door between Goldman Sachs Group Inc. (GS) and central banks is spinning again. The fifth-biggest U.S. bank by assets said yesterday it hired Bank of England economist Andrew Benito after recruiting Huw Pill from the European Central Bank in May and Naohiko Baba from the Bank of Japan in January. Moving in the other direction, Ben Broadbent, Goldman Sachs’s ex-chief U.K. economist, started at the Bank of England last month. Former vice chairman Mario Draghi will take up the presidency of the ECB in November.
  • Bullard Says Fed's Extended Period Pledge for Rates Difficult to Prolong. Federal Reserve Bank of St. Louis President James Bullard said the Fed’s pledge to keep interest rates low for an “extended period” represents the longest duration it can signal for holding down borrowing costs. “I just don’t think it’s a viable option to say we’re going to go to a super extended period,” of low rates, Bullard said to reporters today in St. Louis. “We’ve already said ‘extended period,’ and it’s harder to promise anything even further out.” For now, the Fed has “gone on pause, we have to gather more information” to ensure that the economy will strengthen during the second half of the year, he said at his regional bank’s conference on quantitative easing. “If the economy is not performing well the committee should consider taking additional action,” Bullard said, adding that “the situation today is very different from” the months before the Fed started its second round of bond buying in November. “Inflation has picked up fairly substantially,” Bullard said, and the central bank’s record $2.87-trillion balance sheet “could turn into a lot of inflation if we don’t play our cards right going forward.”
  • Why China's Heading for a Hard Landing, Part 5: A. Gary Shilling.
  • Japan's Tankan Deteriorates to Minus 9. Japan’s Tankan survey showed companies are confident demand will pick up this year as they restore production and hire workers after the earthquake that triggered the biggest plunge in sentiment since 2009. The quarterly Tankan index of sentiment at large manufacturers fell to minus 9 in June from 6 in March, the Bank of Japan said in Tokyo today. A negative number means pessimists outnumber optimists. Large companies said they will boost capital spending 4.2 percent in fiscal 2011, exceeding analysts’ forecasts for a 2.4 percent increase.
  • Lagarde Signals to IMF Staff More Power for Emerging Markets. Christine Lagarde signaled that as the new head of the International Monetary Fund she will follow through on a promise to increase the stature of emerging-market nations at the global lender. Lagarde, speaking to IMF staff in a video message, distanced herself from her previous role as French finance minister and indicated she would advance efforts to give more voting power to countries such as China and Brazil, according to a transcript obtained by Bloomberg News yesterday.
  • Corn Extends Worst Monthly Loss Since 2008, Wheat Falls on U.S. Plantings. Corn extended its biggest monthly loss since October 2008 and wheat tumbled to the lowest level in almost a year after the U.S. reported acreage and inventories that topped estimates by analysts. Corn for December delivery slumped as much as 6.3 percent to $5.815 a bushel, the lowest for the most-active contract on the Chicago Board of Trade since Dec. 16, and traded at $5.8875 at 10:14 a.m. Singapore time. The grain lost 17 percent in June, narrowing the gain in the past year to 53 percent.
Wall Street Journal:
  • FDA Stance on Avastin Irks Lawmakers. The Food and Drug Administration’s move to stop use of the drug Avastin for breast cancer has provoked anger among some Republican leaders in the House, where the issue is likely to be raised in a hearing next week. Energy and Commerce Committee Chairman Fred Upton (R., Mich.) has “grave” concerns about the FDA’s handling of the Avastin issue, House aides said this week. They added that Mr. Upton or another lawmaker is likely to address the FDA move at the Thursday hearing.
  • FTC Makes Twitter Inquiries. The Federal Trade Commission is reviewing Internet messaging-service Twitter Inc. and its interactions with at least one other company that build programs using Twitter data, according to a person familiar with the matter. The precise focus of the review is not clear, but representatives of the FTC's antitrust arm have requested information from a company called UberMedia Inc., which owns applications that let people read and send "tweets," or messages, broadcast by Twitter users, this person said. Twitter considers UberMedia to be a potential competitor, people familiar with the matter have said. The review is "narrow" in scope and won't impact Twitter's fledgling advertising business, this person said.
  • Paulson Urged BofA(BAC) to Fight Investor Claims. Months before Bank of America Corp. began negotiating a settlement with large holders of mortgage-backed securities, hedge-fund manager John Paulson told senior executives not to give in to such demands, according to people familiar with the situation. In one meeting last fall, Mr. Paulson, one of the bank's largest shareholders and a man who had made billions betting against risky mortgage-related debt, laid out a roadmap for fighting one group of prominent institutional investors. The claims brought in October by that group, which included giant money manager BlackRock Inc, evolved into the larger, $8.5 billion pact announced Wednesday.
  • Asia Stock Story Stumbles. Asian stock markets closed out the second quarter in the red, as investors fretted about economic growth trends that remain unclear going into the second half of the year. The Shanghai Composite Index shed 5.7%, Hong Kong's Hang Seng Index dropped 4.8%, India's Sensex fell 3.1%, the Australian S&P/ASX 200 index lost 4.8% and South Korea's Kospi declined 0.3%. The Japanese Nikkei Stock Average edged up 0.6%.
  • The Jobless Summer. Why only one in four teens is employed. Perhaps you've already noticed around the neighborhood, but this is a rotten summer for young Americans to find a job. The Department of Labor reported last week that a smaller share of 16-19 year-olds are working than at anytime since records began to be kept in 1948.
CNBC:
  • Fed's Massive Stimulus Had Little Impact: Greenspan. The Federal Reserve's massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday. In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy. "There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview. Greenspan said he "would be surprised if there was a QE3" because it would "continue erosion of the dollar."
Business Insider:
Zero Hedge:
IBD:
CNN:
  • Clinton: U.S. 'Would Welcome' Dialogue With Muslim Brotherhood. The Obama administration is open to dialogue with the Muslim Brotherhood in Egypt, U.S. Secretary of State Hillary Clinton said Thursday. "We believe, given the changing political landscape in Egypt, that it is in the interests of the United States to engage with all parties that are peaceful and committed to nonviolence, that intend to compete for the parliament and the presidency," she told reporters in Budapest, Hungary. "And we welcome, therefore, dialogue with those Muslim Brotherhood members who wish to talk with us." Mahmoud Ghozlan, a spokesman for the Muslim Brotherhood, said he had heard of the U.S. interest in dialogue only from media reports. "The U.S. administration has supported dictators for decades and authorized torture, repression and colonization," he said. "The U.S. is hated in the Middle East region more than any other country according to polls published in the U.S. If the U.S. is serious in opening a dialogue, they must first respect the people's choices for a true democracy, independence and respect their choice of leaders. We would welcome the open dialogue, if they are serious and transparent."
NY Times:
  • Strauss-Kahn Case Seen in Jeopardy. The sexual assault case against Dominique Strauss-Kahn is on the verge of collapse as investigators have uncovered major holes in the credibility of the housekeeper who charged that he attacked her in his Manhattan hotel suite in May, according to two well-placed law enforcement officials.
  • Glenn Beck Uses Last Show on Fox to Allude to His New Venture. Mr. Beck, 47, who reached an agreement with Fox to leave half a year before his three-year contract expired, evidently was not permitted to mention GBTV by name, but he was allowed to mention his personal Web site, GlennBeck.com, so on his last broadcast on Thursday he repeatedly encouraged his viewers to go there to “find out where I’m going.” His personal Web site redirected visitors to GBTV. Then, half an hour after the broadcast, Mr. Beck left Fox’s studio in Midtown Manhattan and headed to a theater nearby where he hosted a webcast on GBTV.com. The webcast was part of an effort by his production company, Mercury Radio Arts, to sign up paying customers for the site before the debut of his new daily show in September. Speaking through the television set to the members of the media that he said were “celebrating” the end of his Fox show, Mr. Beck said, “You will pray for the time when I was only on the air for one hour every day.” His forthcoming show on the Web will be two hours long.
  • Boeing(BA) Labor Dispute is Making New Factory a Political Football.
Politico:
  • White House Press Pool Losing Scoops to Twitter. Some reporters in the rotating pool of journalists who chronicle the president’s movements are sending TwitPics, revealing factoids and delivering one-line quips in 140 characters before the pool reports go to all of their colleagues.
Real Clear Politics:
  • A Giant Stimulus to Nowhere. Mired in excruciating negotiations over the budget and the debt ceiling, President Barack Obama might reflect that things didn't have to turn out this way. The impasse grows mainly out of one major decision he made early on: pushing through a giant stimulus. When he took office in January 2009, this was his first priority. The following month, Obama signed the American Recovery and Reinvestment Act, with a price tag eventually put at $862 billion. It was, he said at the time, the most sweeping economic recovery package in our history," and would "create or save three and a half million jobs over the next two years." The president was right about the first claim. As a share of gross domestic output, it was the largest fiscal stimulus program ever tried in this country. But the second claim doesn't stand up so well. Today, total nonfarm employment is down by more than a million jobs.
USA Today:
Reuters:
  • U.S. Rejects Demands to Vacate Pakistan Drone Base. The United States is rejecting demands from Pakistani officials that American personnel abandon a military base used by the CIA to stage drone strikes against suspected militants, U.S. officials told Reuters. U.S. personnel have not left the remote Pakistani military installation known as Shamsi Air Base and there is no plan for them to do so, said a U.S. official familiar with the matter, who asked for anonymity to discuss sensitive material. "That base is neither vacated nor being vacated," the official said. The information was confirmed by a second U.S. official. The U.S. declaration that drone operations in Pakistan will continue unabated is the latest twist in a fraught relationship between security authorities in Washington and Islamabad, which has been under increasing strain for months.
  • Romney to Obama: Quit Golf Course, Work for Jobs. Republican White House hopeful Mitt Romney accused President Barack Obama on Thursday of failing to understand how to fix the U.S. economy and urged him to focus on jobs instead of playing golf. "Obamanomics is not working," Romney said, standing in a weed-strewn back entrance to the shuttered American Metal Works plant Obama had visited in 2009 as a potential symbol of economic renewal. It closed early this year. Taking aim at an issue that could be Obama's key vulnerability in the 2012 election, Romney also launched a 40-second Web video blaming the Democratic president's economic policies for 100,000 job losses in Pennsylvania.
  • Equity Fund Outflows $6 Billion, Bonds Get Cash - Lipper.
Guardian:
  • Syria: US Presses For Opposition Dialogue With Assad. Details emerge of a controversial 'roadmap' for reforms that would leave him in power despite demands for his overthrow. The US is pushing the Syrian opposition to maintain dialogue with Bashar al-Assad's regime as details emerge of a controversial "roadmap" for reforms that would leave him in power for now despite demands for his overthrow during the country's bloody three-month uprising.
China Business News:
  • China's lead-battery production capacity may fall by half in three years, citing Hu Xinguo, a director at the China Battery Industry Association. 95% of makers don't meet the 500-meter safety zone required by the government, the report said.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.0 -5.0 basis points.
  • Asia Pacific Sovereign CDS Index 118.75 -3.25 basis points.
  • S&P 500 futures -.09%.
  • NASDAQ 100 futures -.13%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for June is estimated to rise to 72.0 versus a prior estimate of 71.8.
10:00 am EST
  • Construction Spending for May is estimated to rise +.1% versus a +.4% gain in April.
  • ISM Manufacturing for June is estimated to fall to 52.0 versus a reading of 53.5 in May.
  • ISM Prices Paid for June is estimated to fall to 70.9 versus a reading of 76.5 in May.
Afternoon:
  • Total Vehicle Sales for June are estimated to rise to 12.08M versus 11.76M in May.
Upcoming Splits
  • (TMK) 3-for-2
  • (PLCM) 2-for-1
Other Potential Market Movers
  • None of note
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.