BETWEEN THE HEDGES

Thursday, April 26, 2012

Friday Watch

Posted by Gary .....at 11:56 PM

Night Trading

Asian equity indices are -.25% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 167.0 +5.5 basis points.
Asia Pacific Sovereign CDS Index 136.50 +2.0 basis points.
FTSE-100 futures +.03%.
S&P 500 futures -.38%.
NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

(AXL)/.63
(B)/.44
(CVX)/3.22
(COV)/1.03
(F)/.36
(GT)/.09
(IP)/.51
(MRK)/.98
(NWL)/.31
(NEM)/1.14
(PG)/.93
(SPG)/1.67
(SUP)/1.25
(VFC)/1.87
(WY)/.00

Economic Releases
8:30 am EST

The 1Q Employment Cost Index is estimated to rise +.5% versus a +.4% gain in 4Q.
Advance 1Q GDP is estimated to rise +2.5% versus a +3.0% gain in 4Q.
Advance 1Q Personal Consumption is estimated to rise +2.3% versus a +2.1% gain in 4Q.
Advance 1Q GDP Price Index is estimated to rise +2.1% versus a .9% gain in 4Q.
Advance 1Q Core PCE is estimated to rise +2.1% versus a +1.3% gain in 4Q.

9:55 am EST

Final Univ. of Mich. Consumer Confidence for April is estimated at 75.7 versus a prior estimate of 75.7.

Upcoming Splits

(SCVL) 3-for-2

Other Potential Market Movers

The Italian bond auction and the BOJ rate announcement could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Rising into Final Hour on Euro Bounce, Tech Sector Optimism, Short-Covering

Posted by Gary .....at 3:39 PM

Broad Market Tone:

Advance/Decline Line: Higher
Sector Performance: Most Sectors Rising
Volume: Below Average
Market Leading Stocks: Outperforming

Equity Investor Angst:

VIX 16.15 -3.98%
ISE Sentiment Index 105.0 -6.25%
Total Put/Call .80 +9.59%
NYSE Arms 1.03 +16.39%

Credit Investor Angst:

North American Investment Grade CDS Index 96.19 -1.44%
European Financial Sector CDS Index 247.0 +.16%
Western Europe Sovereign Debt CDS Index 274.0 -.25%
Emerging Market CDS Index 255.63 -1.29%
2-Year Swap Spread 29.75 +.75 basis point
TED Spread 38.0 unch.
3-Month EUR/USD Cross-Currency Basis Swap -44.50 unch.

Economic Gauges:

3-Month T-Bill Yield .09% unch.
Yield Curve 169.0 -2 basis points
China Import Iron Ore Spot $143.80/Metric Tonne -1.98%
Citi US Economic Surprise Index -2.0 -1.9 points
10-Year TIPS Spread 2.29 +2 basis points

Overseas Futures:

Nikkei Futures: Indicating a +63 open in Japan
DAX Futures: Indicating +46 open in Germany

Portfolio:

Higher: On gains in my Tech, Medical, Biotech and Retail sector longs
Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
Market Exposure: 75% Net Long

Today's Headlines

Posted by Gary .....at 3:10 PM

Bloomberg:

Merkel Steps Up Defense of Budget Agenda, Targets Excessive Debt. Chancellor Angel Merkel stepped up her budget-cutting message in the face of rising criticism of Germany’s focus on austerity, saying that excessive debt robs states of their ability to make independent decisions. Referring to euro-area countries shouldered with too much debt, Merkel told supporters in the northern German state of Schleswig-Holstein that certain nations had themselves brought on austerity by spending more than they raised in revenue. Too much debt “harms countries’ ability to make their own decisions, so that they’re more and more dependent on the markets, and have to step up savings and make harsher cuts,” Merkel told a campaign rally today in Flensburg on the Danish border. Schleswig-Holstein holds an election on May 6. Merkel stressed her defense of consolidating budgets as the best way to resolve the two-year-old debt crisis even as the focus in Europe shifts away from austerity to promoting economic growth.
Spain Yields at 6% Show Bank, Economy Risk: Euro Credit. As Spain’s recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6 percent as investors speculate the government will be forced to bail out the financial system. The nation’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades. “Spain is likely to need support in both the banking and government sectors,” said Jamie Stuttard, head of international bond portfolio management at Fidelity Investments, which has $1.2 trillion of assets. “Government bond market developments hold the key.”
Anti-Euro Le Pen's Gain Spooks Overseas French Investors. Pierre Mouton, a fund manager at Notz Stucki & Cie. in Geneva, looks at the rise of anti- European, anti-austerity parties across the border in France with concern. It may keep him out of the country’s stock market. “We’re cautious on French stocks,” Mouton, whose firm manages $7.5 billion and has been reducing its holdings in France, said in an interview. “If the new president breaks under pressure from these groups, stocks will suffer. We prefer not to take that risk.”
Oil Rises to One-Week High. “The dollar is down, which is helping most of the commodities,” said Phil Flynn, an analyst at futures brokerage PFGBest in Chicago. Crude oil for June delivery rose 32 cents, or 0.3 percent, to $104.44 a barrel at 12:37 p.m. on the New York Mercantile Exchange. Futures touched $104.92, the highest level since April 17. Prices are up 5.7 percent this year. Brent oil for June settlement increased 45 cents, or 0.4 percent, to $119.57 a barrel on the London-based ICE Futures Europe exchange.
Consumer Comfort in U.S. Falls by the Most in More Than a Year. Consumer confidence in the U.S. dropped last week by the most in more than a year as perceptions of personal finances and the buying climate dimmed. The Bloomberg Consumer Comfort Index fell to minus 35.8 in the period to April 22 from minus 31.4 the previous week, the biggest decline since March 2011. A gauge of the buying climate decreased to a two-month low, and a measure of household financial wherewithal fell by the most since September.
Pending Sales of U.S. Existing Home Increased 4.1% in March. Signed contracts to buy U.S. homes rose more than forecast in March as low interest rates drew buyers back into the market. The index of pending home purchases rose 4.1 percent to 101.4, the highest level since April 2010, after a 0.4 percent gain in February that was revised from a previously estimated 0.5 percent drop, the National Association of Realtors reported today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for a 1 percent rise in the measure, which tracks contracts on previously owned homes.
Gold Climbs on Jobless Claims. Gold rose the most in two weeks on speculation that the Federal Reserve may increase stimulus measures to bolster the U.S. economy after more Americans than forecast filed applications for unemployment benefits last week. “The job market is softening, and the Federal Reserve may be forced to look at some form of easing,” James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida, said in a telephone interview. “Investors have started pricing that in.” Gold futures for June delivery rose 0.7 percent to $1,653.80 an ounce at 9:33 a.m. on the Comex in New York. A close at that price would mark the biggest gain for a most- active contract since April 12. Before today, the precious metal gained 4.8 percent this year.
Providence Said Selling Hulu Stake at $2 Billion Value. Hulu.com owners Walt Disney Co. (DIS), Comcast Corp. (CMCSA) and News Corp. (NWSA) are close to buying out Providence Equity Partners Inc.’s stake at a price that values the company at $2 billion, said two people with knowledge of the matter. Providence is selling its 10 percent share in Hulu for $200 million after investing $100 million when the venture began in 2007, according to the people, who weren’t authorized to talk publicly.
Fed Sells CDOs From AIG Rescue to Barclays(BCS), Deutsche Bank(DB). The Federal Reserve Bank of New York said it sold $7.5 billion of collateralized debt obligations linked to commercial mortgages to Barclays Plc and Deutsche Bank AG. The joint winning bid “represents good value for the public and significantly exceeds the original price” the central bank paid for the assets, New York Fed President William C. Dudley said today in a statement on the regional bank’s website.
Banks Likely to Cut Pay, Staff, Boston Consulting Says. Investment banks, faced with a weak industry outlook, probably will reduce the amount of revenue set aside for pay and should cut 20 percent to 30 percent of managers, according to Boston Consulting Group Inc.

Wall Street Journal:

Sympathy for the Devils May Be Running Short at Goldman(GS). A few years ago, Mick Jagger was asked why the Rolling Stones were about to embark on one of their gray-haired, past-their-prime tours with big beer-company sponsorships and pricey tickets. "Is it about the money?" the questioner said. Without missing a beat, Mr. Jagger replied: "It's always been about the money."
Appetite Is Back for AIG Bonds. Two bundles of bonds that once helped sicken American International Group Inc.(AIG) now have Wall Street salivating.
FDA Plans ID-Tag System to Detect Faulty Devices. The Food and Drug Administration is devising a new system for detecting malfunctions in medical devices that will tap medical and billing records from hospitals and insurance companies. The system is designed to catch malfunctioning devices like the St. Jude Medical Inc. heart defibrillator wires recently linked to at least 20 deaths. The agency wants to assign a new bar-code-like identification number to medical devices. It would use that number to search large databases of records that could include veterans' and other hospitals, as well as large insurance companies.

CNBC.com:

Foreclosure Activity Returns in Majority of US Markets. Big jumps in foreclosure activity in cities like Pittsburgh, Indianapolis, New York and Raleigh pushed the national numbers higher in the first three months of this year, according to a new report from RealtyTrac, an online foreclosure sales and data company. A majority of U.S. housing markets posted a quarterly increase in foreclosure activity.
Growth in Europe? Call It a Very Vague Aspiration.

Business Insider:

Another Poll of Independents Spells CATASTROPHE for Obama.

Zero Hedge:

Wall Street Pit:

Apple(AAPL) Remains the "Best of Breed".

Telegraph:

China's Property Boom Has Peaked, Forever. Here is some food for thought, if you are a China "take-over-the-world" bull. I have just been listening to a talk on the Chinese housing market by Xianfang Ren, Beijing analyst for IHS Global Insight. Land sales make up 30pc of total tax revenue for the central government and 70pc for local government. (For those of us who watched the Irish state balloon on the back of property taxes – when they had a fat budget surplus – this has a familiar ring.) Construction makes up 10pc of total jobs, and a further 20pc indirectly in cement, steel, metallurgy etc. The government is building 36m homes for the poor, but that will start to run down in two years or so. Residential investment typically peaks at 8pc to 9pc of GDP for emerging nations during their catch-up growth spurts. It is already 12pc in China. Japan’s ratio peaked in 1973, long before the property price bubble burst. China has almost certainly peaked too on this crucial measure.
Europeans Will Never Accept a Federal Banking System. The latest crackpot idea for shoring up Europe's monetary union, much discussed at last week's spring meeting of the International Monetary Fund and now widely promoted by eurocrats, is the establishment of a federal banking system, with a single framework for regulation, bailouts, deposit insurance, supervision and resolution.

Europa:

EU Sues Italy Over Rules on Energy Performance of Buildings. Buildings are responsible for around 40% of energy consumption and 36% of the CO2 emissions in the European Union. The European legislation aims to achieve a significant reduction in the energy consumption of buildings, thus helping to combat climate change and strengthen the EU’s energy security. Large energy savings will also enable households to drastically reduce their bills. It is therefore essential that Member States fully apply this legislation.

Bear Radar

Posted by Gary .....at 2:30 PM

Style Underperformer:

Mid-Cap Value +.55%

Sector Underperformers:

1) HMOs -1.69% 2) Networking -1.38% 3) Coal -1.26%

Stocks Falling on Unusual Volume:

ISIL, ATMI, AET, GG, AZN, DOW, FURX, HURN, AKAM, MFRM, NIHD, ODFL, CROX, IDCC, SCSS, CELG, ITRI, LSTR, YNDX, CHRW, VCI, VAR, HRB, AZN, CAB, BC, BG, HP, TPX, LVS, BWA, SPPI, TRN, NUS, KMT and GGG

Stocks With Unusual Put Option Activity:

1) HRB 2) KLAC 3) AKAM 4) CTXS 5) THOR

Stocks With Most Negative News Mentions:

1) HES 2) XOM 3) HRB 4) BMY 5) PCS

Charts:

Bull Radar

Posted by Gary .....at 11:20 AM

Style Outperformer:

Small-Cap Growth +.44%

Sector Outperformers:

1) Education +4.44% 2) Computer Hardware +1.47% 3) Semis +1.31%

Stocks Rising on Unusual Volume:

NRGY, CRUS, COG, XLNX, RDS/A, PATK, HTWR, NTGR, IFSIA, ACOM, SLAB, REGN, STRA, CTXS, EQIX, INCY, NUAN, ARRS, ORLY, BCO, SWI, AH, SKX, RYL, STMP, DFT, JAH, PMTC, WPI, VHC, TWI, EA, CRI, IPG, CLGX, OPEN and SUSQ

Stocks With Unusual Call Option Activity:

1) CS 2) HUM 3) LEAP 4) CROX 5) SLM

Stocks With Most Positive News Mentions:

1) CTXS 2) LVS 3) XLNX 4) AKAM 5) CCE

Charts:

Thursday Watch

Posted by Gary .....at 12:10 AM

Evening Headlines
Bloomberg:

Spanish Yields at 6% Show Risks of Banking Bailout: Euro Credit. As Spain's recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6% as investors speculate the government will be forced to bailout out the financial system. The nation's 10-year borrowing costs have climbed about 70 basis points this yer as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier's efforts as bad loans reach the highest levels in almost two decades. "Spain is likely to need support in both the banking and government sectors," said Jamie Stuttard, head of international bond portfolio management at Fidelity Investments, which has $1.2 trillion of assets. "Government bond market developments hold the key."
Swedish CDS Surge Tops Spain's as Crisis Spreads: Nordic Credit. Sweden's credit-default swaps soared more than debt derivatives for any other European government this month as Scandinavia's biggest economy succumbs to crisis contagion via its export markets. The cost of protecting Swedish debt against default rose about 36% in April, the biggest increase in western Europe. Swaps on Germany advanced 19% in the same period while the cost of protecting Spanish debt against default grew 9%.
Three Reasons Japan's Economic Pain Is Getting Worse. Japan’s economic problems are serious and getting worse. Foremost among them is the crushing burden of government debt. Japan’s ratio of government debt to gross domestic product, currently about 2.28, is by far the highest in the industrial world, almost double that of even Greece and Italy, and steadily growing. Already, the combined costs of interest on that debt and social security are approximately equal to total government tax revenue. Japan’s trade balance is about to go negative for the first time since 1980. Land values and Nikkei stock values have fallen to about 30 percent of 1989 levels. Now, educated young Japanese women are emigrating, Japanese companies are shifting production overseas (even to the U.S.), national politics are in gridlock (six prime ministers in the past five years), and last year Japan experienced its first mass street protests in decades. The economic troubles are symptoms of at least three sets of deeper social problems.
Buffett-Backed BYD Says First-Half Net May Fall Up to 95%. BYD Co. (1211), the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), said first-half profit may fall as much as 95 percent because of reduced earnings from solar energy and mobile handsets. Net income for the six months ended June 30 may drop to between 13.8 million yuan ($2.2 million) and 68.8 million yuan, the Shenzhen-based manufacturer said in a statement to the Hong Kong stock exchange yesterday. Demand for BYD’s cars slowed after the government ended buying incentives and the popularity of its top-selling F3 sedan waned. First-quarter sales fell 8 percent on year to 108,755 vehicles, the company said. China’s total passenger-car sales fell for the first time since 2005, dropping 1.3 percent from a year earlier, as the slowing economy and rising fuel costs curbed buying. BYD blamed the forecast decline in profit mainly on a “great loss” in its solar cell business. “The whole solar industry has a tremendous amount of excess capacity,” said Theodore O’Neill, an analyst at Wunderlich Securities in New York. “If you’re in an industry that’s borderline profitless and you’re a smaller player like BYD, it’s maybe going to be worse than profitless.”
Is 'Fiscal Cliff' a Keynesian Topography Mistake? by Caroline Baum.
Brazil Puts Reach Record High on China, Europe Concern: Options. Options traders are paying record prices to protect against Brazilian equity losses as growth slows in China, its biggest trading partner, and concern increases that Europe's debt crisis will worsen. Puts priced 10% below the iShares MSCI Brazil Index Fund cost 1.38 times more than calls betting on a 10% gain, data on three-month options compiled by Bloomberg show. The price relationship known as skew rose to an all-time high of 1.42 on April 20. Contracts that profit should the ETF lose 10% by June were the most-owned, the data show.

Wall Street Journal:

Car Dealers Fight On. Auto Dealers Cut in 2009 Bailout Continue to Take on Constitutionality Issue. U.S. government bailouts of General Motors(GM) and Chrysler became a constitutional battleground when they were pushed through bankruptcy court in 2009. Turns out the battle isn't over just yet. More than 220 former car dealers are pressing their case that the Obama administration violated the U.S. Constitution when the car makers terminated franchise agreements while in bankruptcy restructuring.

Fox News:

TSA Screeners Charged in Los Angeles Drug Trafficking Probe. Two former and two current Transportation Security Administration employees have been arrested and indicted on drug conspiracy charges for allegedly allowing large amounts of cocaine and other drugs to pass through security screening at Los Angeles International Airport last year. Seven people face drug-related charges in a 22-count indictment unsealed Wednesday in Los Angeles federal court. Other charges include paying and receiving bribes by a government official.

Business Insider:

Zero Hedge:

A Spinning Blankfein Responds If Goldman(GS) Is Still A Vampire Squid. (video)

CNBC:

ICBC Chairman: China Bank ‘Monopoly’ Should Be Broken.

NY Times:

Hedge Fund Managers See Tough Year for Industry. Hedge fund managers are predicting a tough year for the sector in 2012. A report by the consulting firm Rothstein Kass found about half of the 400 hedge fund managers who responded believed that 2012 would be a “a difficult or somewhat difficult” year for the industry. Almost 40 percent expressed concerns that the United States would enter a double-dip recession. Only about 32 percent of those who responded in 2011 thought it would be a rough year for hedge funds. Political and economic uncertainty, tougher requirements by the Securities and Exchange Commission and brutal competition for investment dollars are among the challenges facing the industry in 2012, said Howard Altman, co-chief executive of the Financial Services Group at Rothstein Kass. “Less people are optimistic; they’re thinking about the economy, the way the markets have behaved post-crisis, and the regulatory environment that’s facing them,” he said.

Seeking Alpha:

9 High-Growth Retail Stocks Snapped Up By Hedge Funds.

TechCrunch:

YouTube Is 27% Of Mobile Video Traffic In North America, Netflix(NFLX) Just 2%. YouTube is the largest source of mobile video traffic, according to a new report from Sandvine, and now accounts for as much as 25% of network data, and no less than 12% at any given time. The report examined traffic across a selection of Sandvine’s 200+ customers in North America, Europe, the Middle East, Africa, the Caribbean, Latin America, and the Asia-Pacific. Combined with other services like Pandora and Netflix, audio and video streaming make up more than half of mobile data traffic in North America, and it’s on track to reach 60% by 2014, the company says.

The Examiner:

Two Years On, Health Care Bill Is Like A Plague. Democrats are regretting the passage of the Patient Protection and Affordable Care Act. Now that we know it is nothing if not unaffordable, the act is itself the main danger from which they seek political protection and shelter. Why now? Perhaps to get a jump on things before the act is ruled unconstitutional, or before it causes even more Democrats to lose in November, or before President Romney repeals it in 2013. "I think that the manner in which the issue was dealt with ... cost Obama a lot of credibility as a leader," said Sen. James Webb, D-Va. Webb, who voted for passage and is retiring after one term, added that if Obama had gone for a small, simple measure, he could have won some Republican votes. Rep. Brad Miller, D-N.C., who is also retiring, remarked that "[w]e would all have been better off if we had dealt first with the financial system" and said Democrats wasted time and political capital creating problems that dragged the economy down. Rep. Dennis Cardoza, D-Calif., who is also retiring, said the bill should have been done in "digestible pieces," and they should have 'figure[d] how they were going to pay for the bill, and then figure[d] out what they could afford." Rep. Barney Frank, D-Mass., of all people, says the Democrats should have stopped after Scott Brown won his election. Former Rep. Artur Davis, D-Ala., who lost a gubernatorial primary after voting against it, got it right when he said "the Affordable Care Act is the single least popular piece of major domestic legislation in the past 70 years."

Rasmussen Reports:

Daily Presidential Tracking Poll. (graph) The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney earning 49% of the vote, while President Obama attracts support from 44%. Three percent (3%) would vote for a third party candidate, while another four percent (4%) are undecided.

Reuters:

Xilinx(XLNX) 4th-quarter beats, sees upbeat Q1. Chipmaker Xilinx Inc posted better-than-expected quarterly results and it guided first-quarter revenue well above market estimates, signaling a faster recovery in its communications business. Shares of the company rose 8 percent in after-market trading.
Akamai(AKAM) forecast weak Q2, shares down. Internet content delivery company Akamai Technologies Inc's outlook for second-quarter profit fell short of analysts' estimates, sending its shares down 10 percent in aftermarket trade.