Monday, January 31, 2011

Stocks Rising into Final Hour on Rising Economic Optimism, Short-Covering, Declining Eurozone Debt Angst

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.80 -1.20%
  • ISE Sentiment Index 181.0 +84.69%
  • Total Put/Call 1.03 -3.74%
  • NYSE Arms 1.02 -35.41%
Credit Investor Angst:
  • North American Investment Grade CDS Index 84.34 +.49%
  • European Financial Sector CDS Index 141.37 bps -4.89%
  • Western Europe Sovereign Debt CDS Index 177.17 bps -3.97%
  • Emerging Market CDS Index 223.83 -.79%
  • 2-Year Swap Spread 23.0 +1 bp
  • TED Spread 16.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .14% unch.
  • Yield Curve 282.0 +4 bps
  • China Import Iron Ore Spot $185.60/Metric Tonne +.16%
  • Citi US Economic Surprise Index +28.70 +.5 point
  • 10-Year TIPS Spread 2.32% +6 bps
Overseas Futures:
  • Nikkei Futures: Indicating +8 open in Japan
  • DAX Futures: Indicating +23 open in Germany
  • Slightly Higher: On gains in my Ag, Biotech and Tech long positions
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher, despite rising Mideast tensions, higher energy prices, emerging markets inflation worries and rising long-term rates. On the positive side, Road&Rail, Gaming, REIT, Construction, Steel, Oil Service, Energy and Coal shares are especially strong, rising more than 1.0%. (XLF)/(IYR) have traded well throughout the day. Copper is rising +1.83%. The Spain sovereign cds is falling -6.36% to 248.93 bps, the Italy sovereign cds is dropping -3.40% to 180.09 bps, the Portugal sovereign cds is falling -4.91% to 433.37 bps and the Ireland sovereign cds is falling -3.43% to 597.67 bps. Gold is -.37% lower on the day. On the negative side, Airline, Retail, Homebuilding and Oil Tanker shares are under pressure, falling more than -.5%. Tech shares are underperforming. Emerging market stocks(EEM) continue to trade poorly. The Japan sovereign cds is rising +2.17% to 84.21 bps, the Saudi sovereign cds is gaining +28.1% to 119.70 bps and the Egypt sovereign cds is climbing +7.8% to 421.27 bps. The UBS-Bloomberg Ag Spot Index is rising +1.22% to another new record high. Oil surged into the close of floor-trading and is up about +3% today. The 10-Year yield is rising +6 bps to 3.38%. The major averages are displaying exceptional resiliency again. If oil stays below $100/bbl., the major averages will likely test recent highs over the coming days. Any convincing break above $100/bbl. would likely result in a meaningful pullback in the major averages from current levels. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, rising long-term rates, more shorting, emerging markets inflation fears, rising Mideast social unrest and surging oil prices.

Today's Headlines


  • French, British Banks Have Most Exposure to Egyptian Loans, BIS Data Show. International banks have lent $49.3 billion to Egyptian borrowers, with French and U.K. banks having the most exposure to the country torn by anti-government protests, data from the Bank for International Settlements show. French banks’ claims on Egyptian borrowers stood at $17.6 billion at the end of September, BIS statistics released Jan. 27 show. U.K. banks’ exposure was $10.7 billion and Italian banks had $6.3 billion in claims, the data show. European banks’ total claims amounted to $40.3 billion.
  • Purchasing Managers Index Rises as Business Expands. Businesses in the U.S. expanded in January at the fastest pace since July 1988, indicating the world’s largest economy has momentum at the start of the year. The Institute for Supply Management-Chicago Inc. said today its business barometer rose this month to 68.8 from 66.8 in December. “This fortifies the stability of the recovery,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. “You definitely see traction from manufacturing going forward.” The Chicago group’s production gauge rose to 73.7 from December’s reading of 72.2. The gauge of new orders increased to 75.7, the highest since December 1983, from 71.3. The employment measure rose to 64.1, the strongest since May 1984, from 58.4 the prior month.
  • Fed's Lockhart Says Unemployment 'Nowhere Near Acceptable,' Sees Recovery. Federal Reserve Bank of Atlanta President Dennis Lockhart said policy makers should continue with record monetary stimulus and try to bring down unemployment that’s persisting at an unacceptably high level. “There are definitely hopeful signs of sustained recovery in 2011,” Lockhart said today in the text of a speech in Miami. “That said, I believe it is a bit early to declare victory, and, to be sure, employment is nowhere near acceptable levels.” The Fed last week reaffirmed its plan to buy $600 billion in Treasuries through June, pressing on with stimulus aimed at reducing the 9.4 percent unemployment rate and keeping inflation from slowing.
  • ECB Must Monitor Prices More Closely, Wellink Tells Dow Jones. European Central Bank Governing Council member Nout Wellink said the bank should watch price developments more closely than before, Dow Jones reported, citing an interview. “Rising global commodity prices are putting pressure on inflation, that’s quite clear,” Wellink, who also heads the Dutch central bank, was quoted as saying on Sunday in Kyoto, Japan. “It’s a reason to monitor even more closely than before the inflation developments in Europe,” Wellink said, according to the report.
  • Barai Capital Winds Down Funds After FBI Raid, Investor Says. Barai Capital Management LP, the New York-based hedge fund run by Samir Barai, is liquidating its funds after being raided by the Federal Bureau of Investigation as part of the government’s insider-trading probe, according to a memo from the firm that seeded the manager. “BCM has informed us that they are cooperating fully with the government’s investigation. The firm also has informed its investors that it commenced an orderly wind down of the BCM funds," Protege Partners LP co-founders Jeff Tarrant and Ted Seides said in an e-mail sent today to investors, a copy of which was obtained by Bloomberg.
  • The Baltic Dry Index, a measure of commodity-shipping costs, fell to the lowest in almost two years as new vessels joined the fleet. The index fell 30 Points, or 2.6%, to 1,107 points, the lowest since February, 2009. Rates dropped 38% this month, and 17% last week alone.
  • Record Cotton Prices May Curb China Textile Growth, Planer Says. Record gains in prices of cotton and rising labor rates may limit the expansion of China’s textile industry and reduce export competitiveness, according to the National Development & Reform Commission. In 2010, prices surged to 30,000 yuan ($4,551) per metric ton from 14,000 yuan at the beginning of the year, while labor costs gained as much as 20 percent, the top economic planner said in a report on its website yesterday. “Raw material and labor shortages are the industry’s bottleneck,” the report said. A slower rate of recovery of the global economy and world consumer demand, as well as a stronger yuan, will reduce the competitiveness of China’s textile products, the report said.
  • Tiger Woods Dubai Gulf Resort Halted as Luxury Market Struggles. Work on a Tiger Woods branded golf resort in Dubai has been halted by developer Dubai Properties Group, which cited a struggling luxury property market. “The decision was based on current market conditions that do not support high-end luxury real estate,” Dubai Properties, a unit of Dubai Holding, said in a statement via mobile-phone text message today. “These conditions will continue to be monitored and a decision will be made in the future when to restart the project.”
  • Organized Crime Blamed for Roiling $110 Billion Carbon Market. Organized criminals are being blamed for stealing European Union pollution permits and sparking a police hunt across the continent, battering confidence in an 80 billion-euro ($110 billion) market. Thieves who steal CO2 permits try to sell them in the market before owners realize they are missing, according to Czech trader Nikos Tornikidis. The criminals may have exploited “negligent” security standards in some EU nations that participate in the world’s largest system for trading rights to discharge greenhouse gases, Jos Delbeke, director general for climate at the European Commission, said in an interview.
  • Intel(INTC) Reduces First-Quarter Forecast Due to Cougar Point Chip-Design Error. Intel Corp., the world’s largest maker of semiconductors, said a design error in one of its chips will reduce sales and profit margins as it spends $700 million to repair and replace affected products. The flaw will cut first-quarter revenue by $300 million and gross-profit margin by 2 percentage points, Santa Clara, California-based Intel said in a statement today. Intel shares fell and rival Advanced Micro Devices Inc. climbed.
  • Huntsman Said to Be Planning to Resign as Ambassador to China. Jon Huntsman, the U.S. ambassador to China, has told the Obama administration he plans to resign, an administration official said, a sign the former Utah governor may bid for the 2012 Republican presidential nomination. Obama has been informed that Huntsman intends to leave in May, according to the official, who spoke on condition of anonymity.
  • Bearish Dell(DELL) Options Bets Surge to 12-Year High Before Earnings. Dell Inc. options traders are making the most bearish bets in 12 years before the world’s second- biggest maker of personal computers reports fourth-quarter earnings results next month. The ratio of outstanding puts to sell Dell stock versus calls to buy reached 1.1-to-1 last week after January contracts expired, rising to the highest level since November 1998.
  • Espirito Santo Sells Loans as Iberian Lenders Plan to Abandon Infrastructure. Portuguese and Spanish banks may be forced to sell some of the $55 billion of loans they made to finance projects from highways to clean energy since 2006 as their own cost of funding makes holding the debt uneconomical.
  • Irish Central Bank Lowers Growth Forecast for 2011. Ireland’s central bank cut its forecast for economic growth this year by more than half as the government steps up budget cuts and consumers trim spending. Gross domestic product will probably rise by 1 percent this year instead of the 2.4 percent forecast in October, after falling an estimated 0.3 percent in 2010, the Dublin-based bank said today in its quarterly bulletin.
  • Exxon(XOM) Profit Rises as Energy Prices, Demand Climb. Exxon Mobil Corp., the world’s largest company, posted its biggest quarterly profit in more than two years as energy demand boosted oil and fuel prices.

Wall Street Journal:
  • Calls for Change Intensify in Cairo. Egyptian protest organizers are calling for one million people to march Tuesday to demand the ouster of President Hosni Mubarak, a new sign that the calls for regime change in the Arab world's most populous country could be reaching a crescendo. On the seventh consecutive day of demonstrations, Mr. Mubarak overhauled the government in his latest attempt to defuse unprecedented public anger at his 30-year rule. His new ministers include stalwarts from his ruling party and security apparatus, which is widely reviled for its brutal intelligence and police networks. He also kicked out his longtime finance minister who is highly regarded among financial institutions but disliked within Egypt and blamed for the lack of jobs and high unemployment. Egypt's fragmented opposition groups Monday were lining up behind Nobel Peace laureate Mohamed ElBaradei as their best chance to oust Mr. Mubarak, while the nation's military closed ranks with the government leadership but allowed protesters to continue mass demonstrations.
  • Hedge-Fund Group Asked SEC About Expert Networks. A hedge-fund industry group has asked the Securities and Exchange Commission for guidelines on the use of expert networks, which have been under scrutiny in a federal insider-trading probe, the organization's chief executive said on Monday.
  • Oil Trading Hits Record Levels. Trading volumes in oil-futures contracts rose to the highest level on record Friday, spurred by unrest in Egypt that could threaten key oil shipments. A record 1,472,088 contracts changed hands for light, sweet crude-oil futures on the New York Mercantile Exchange, surpassing the previous record of 1,423,536 contracts set in April 2010. On the ICE Futures Exchange, the comparable contract for West Texas Intermediate futures reached a record 496,165 contracts, surpassing its April 2010 high. On Monday, Brent crude prices hit $100 a barrel for the first time in more than two years amid the tensions in the Middle East. The records came amid a turnaround rally in crude Friday, with oil futures surging 4.3% to $89.34 a barrel after antigovernment protests intensified in Egypt and investors worried that unrest across the Middle East in recent weeks could spread to major oil-producing states. The rise in trading volumes underscores the surging investor interest in commodities, particularly crude oil. The price increase to $147 a barrel in 2008 created a wider following of the oil markets, drawing retail investors as well as new institutional money managers into a market dominated for decades by global trading firms, major banks and dedicated specialists. Rising energy prices and oil's potential hedge against political upheaval in the Middle East have turned crude oil into a key asset for many investors' portfolios. A string of financial products, including exchange-traded funds, have made it easier for retail investors to enter the market. The U.S. Oil Fund, the world's largest commodity ETF, has grown to $1.7 billion.
Bloomberg Businessweek:
  • Fed Says Banks 'Significantly More Upbeat' on Delinquencies. Most banks in the U.S. expect loan delinquencies and charge-off rates to improve in 2011, a Federal Reserve survey showed, as standards eased and demand increased for business lending. “Expectations were significantly more upbeat than in past years,” the central bank said today in its quarterly survey of senior loan officers. “Banks reported that they expected improvements in delinquency and charge-off rates during 2011 in every major loan category.”
Business Insider:
Zero Hedge:
New York Post:
  • Wal-Markdown Inventory Glut Cuts Giant Retailer Down to Size. Wal-Mart is coping with a bad case of post-holiday indigestion. After binging on Christmas inventory, the world's biggest retailer has been forced to take drastic steps in recent weeks to clear stores and warehouses of excess goods, according to sources close to the company. The culprit: disappointing December sales. "It looks like they are in danger of heading into another negative 'comp' for the quarter," according to an executive at a major Wal-Mart supplier, referring to the retailer's fourth-quarter comparable-store sales, or sales at stores open at least a year -- a key measure of performance.
Washington Post:
  • New Estimates Put Pakistan's Nuclear Arsenal At More Than 100. Pakistan's nuclear arsenal now totals more than 100 deployed weapons, a doubling of its stockpile over the past several years in one of the world's most unstable regions, according to estimates by nongovernment analysts. The Pakistanis have significantly accelerated production of uranium and plutonium for bombs and developed new weapons to deliver them. After years of approximate weapons parity, experts said, Pakistan has now edged ahead of India, its nuclear-armed rival. An escalation of the arms race in South Asia poses a dilemma for the Obama administration, which has worked to improve its economic, political and defense ties with India while seeking to deepen its relationship with Pakistan as a crucial component of its Afghanistan war strategy.
  • Hedge Fund Managers' Confidence in US Equities Falters Slightly, But They Remain Bullish Overall - Baryclays TrimTabs. Hedge fund managers are upbeat on U.S. equities but less bullish than a month ago, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for January. About 37% of the 91 hedge fund managers the firms surveyed in the past week are bullish on the S&P 500, down from 46% in January, while 26% are bearish, up from 19%. “Less upbeat forecasts are somewhat surprising in that hedge fund managers performed exceptionally well in the final four months of 2010,” said Sol Waksman, founder and President of BarclayHedge. “Nevertheless, the January bullish reading is the second-highest since the inception of our survey in May 2010, while the bearish reading is the second-lowest. Hedge fund managers still have plenty of skin in the game.”
  • US Muni Rating Cuts to Outpace Upgrades - Fitch. Ratings on bonds sold by hard-pressed U.S. states and local governments will continue to be downgraded more frequently than upgraded, as was the case during 2009 and 2010, Fitch Ratings said on Monday.
  • Middle Eastern Debt Costs Rise Sharply. Gavan Nolan of Markit believes that that the latest scenes from Cairo are making traders fear regional contagion. The cost of insuring Egyptian government debt increased sharply today, in a sign that investors have grown more nervous about the ongoing crisis. Other Middle Eastern government debt also came under pressure, as the protests against president Hosni Mubarak entered a seventh day. The five-year Egypt credit default swap rose by 17 basis points to 445bps, according to data from Markit. This is close to its highest level since April 2009. This means it costs £445,000 to insure £10m of Egyptian debt. In comparison, the UK five-year credit default swap trades around 60bps, while Ireland's CDS hit 600bps recently. Elsewhere, the Saudi Arabia CDS jumped by 29bps to 120bps, Bahrain rose by 28bps to 220bps, and Qatar gained 17bps to 110bps. The only faller in the region was Israel, down 1bps at 145bps. Gavan Nolan of Markit believes that the latest scenes from Cairo are making traders more risk averse. "Fears of contagion are increasing, as investors wonder if the events in Egypt will spread across the Arabian peninsula," said Nolan.
  • China enacted a regulation today requiring reporters to be "prudent" when reporting securities and futures news that may affect investors' prospects or market stability. The rule was issued by the General Administration of Press and Publication and the China Securities Regulatory Commission, Xinhua said.
Shanghai Daily:
  • Iran to Display New Satellites, Rockets in Early February. Defense Minister Ahmad Vahidi has said new range of rockets and satellites will be showcased during the Ten-Day Dawn celebrations which will start on February 1. The Ten-Day Dawn celebrations are held across the country to commemorate the anniversary of the victory of Islamic Revolution in 1979.

Bear Radar

Style Underperformer:

  • Large-Cap Value (+.59%)
Sector Underperformers:
  • 1) Oil Tankers -2.63% 2) Homebuilders -.87% 3) Airlines -.59%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) SWY 2) PLD 3) WHR 4) MIPS 5) ANR
Stocks With Most Negative News Mentions:
  • 1) RYN 2) WSH 3) RBCN 4) PENN 5) UGI

Bull Radar

Style Outperformer:

  • Mid-Cap Growth (+.84%)
Sector Outperformers:
  • 1) Coal +2.73% 2) Energy +1.84% 3) Steel +1.67%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) NPSP 2) ANR 3) NVLS 4) MEE 5) DEPO
Stocks With Most Positive News Mentions:
  • 1) RGS 2) CPSI 3) CSC 4) CUB 5) RYL

Monday Watch

Weekend Headlines

  • Dubai Index Falls Most Since May, Leads Mideast Drop, on Egypt. Middle East shares dropped, sending Dubai’s index down the most in eight months, amid ongoing protests demanding the ouster of Egyptian President Hosni Mubarak. Israeli stocks and bonds declined. Emaar Properties PJSC, which says it’s the largest foreign- direct investor in Egypt’s real-estate industry, lost 8.3 percent. Air Arabia PJSC fell the most since March. The DFM General Index plunged 4.3 percent, the most since May 25, to 1,543.02 at the 2 p.m. close in Dubai. The Bloomberg GCC 200 Index lost 0.3 percent. Egypt’s market was closed today after sliding 16 percent last week. It will remain shut tomorrow, Al Arabiya said. “International investors are fleeing Middle East stock markets with justified risk aversion across the board,” said Mahdi Mattar, head of research at Abu Dhabi-based CAPM Investment PJSC, an investment banking company. “Due to panic from local and international investors, there is no discrimination between stocks with exposure or non-exposure to Egypt, though we expect that in coming sessions.”
  • Egypt Spurs Jump in Developing Money-Market Rates. Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt may destabilize the Middle East. The yield on JPMorgan Chase & Co.’s ELMI+ Index of short- term debt in emerging markets rose to 2.5 percent on Jan. 28 from a record-low of 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a four-month high of 2.79 percentage points, according to JPMorgan’s EMBI+ Index. Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities toward the highest level since September 2008.
  • Egypt Is Reaching a 'Tipping Point,' ElBaradei Tells Monocle. Egypt is reaching a “tipping point,” opposition campaigner Mohamed ElBaradei said in an interview with Monocle. “People are desperate and anxious for change to happen overnight,” ElBaradei, the former chief of the International Atomic Energy Agency, said in the London-based monthly’s February edition. “I see that approaching. People say Egyptians are patient, but you go around the streets of Cairo and you’ll see that the tipping point coming.” The West is “losing every ounce of credibility when it comes to convincing people here that it is serious about their basic values: democracy, freedom, justice, rule of law,” said ElBaradei, 68. “That fuels extremism. The West doesn’t realize that stability is not based on shortsighted security measures; stability will only come when people are empowered, when people are able to participate.” ElBaradei has said he may run for president if the government eases constitutional rules that make it difficult for independent candidates. Egyptian President Hosni Mubarak is set to name a new government today after ignoring demands to resign from protesters who clashed with security forces for a fifth day, setting buildings and vehicles alight.
  • Oil Gains a Second Day Amid Concern Egyptian Unrest Will Spread. Oil rose for a second day in New York after unrest in Egypt prompted concern that protests may spread to crude-producing parts of the Middle East. Futures increased 4.3 percent on Jan. 28, the most since September 2009, after clashes between police and protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. Any disruption to Middle East oil supplies “could actually bring real harm,” U.S. Energy Secretary Steven Chu said on a conference call. Crude for March delivery gained $1.53, or 1.7 percent, to $90.87 a barrel, in electronic trading on the New York Mercantile Exchange at 11:14 a.m. Sydney time.
  • Goldman Sachs(GS) Boosts CEO Blankfein's Stock Bonus by 40% to $12.6 Million. Goldman Sachs Group Inc. gave Chairman and Chief Executive Officer Lloyd Blankfein a $12.6 million stock bonus for 2010, an increase from $9 million in restricted stock a year earlier. Blankfein, 56, received 78,111 shares on Jan. 26, according to a filing yesterday with the U.S. Securities and Exchange Commission. At the closing price of $161.31 that day, the shares would be valued at $12.6 million. New York-based Goldman Sachs also raised Blankfein’s base salary to $2 million this year from $600,000, according to a separate filing. Goldman Sachs, the fifth-largest U.S. bank by assets, reported 2010 earnings dropped 38 percent from a record in 2009 as revenue from trading stocks and bonds fell from an all-time high. The firm set aside 39 percent of revenue to pay employees in 2010, up from 36 percent in 2009, the lowest ratio ever.
  • Shanghai Official Warns Against 'Hot Money'. Shanghai should monitor cross-border yuan settlement to prevent “hot money” from entering local property and stock markets, Zheng Yang, a deputy head at the Shanghai branch of the State Administration of Foreign Exchange, wrote in China Finance magazine. China needs to guard against so-called hot money, or “abnormal” capital inflows by investors seeking to profit from exchange-rate differentials, Zheng wrote. The government is seeking to counter the fastest inflation in more than two years and limit asset bubbles in real estate after record lending drove the nation’s economic recovery.
  • Lonely Analyst Warns of 2015 Bank Crisis Amid 'Upbeat' Davos. As politicians, executives and financiers networked at parties and panels last week in Davos, Switzerland, Barrie Wilkinson was in a nearby hotel, warning that a 2015 financial catastrophe may be looming. “The fundamentals haven’t been addressed at all,” Wilkinson, a London-based partner at consulting firm Oliver Wyman, said in an interview at the Hotel Morosani Schweizerhof. “The things that caused the previous crisis -- loose monetary policy and trade imbalances -- they’re actually bigger now than they were then.”
  • Hedge Fund Bears Blindsided by Oil Surge on Egypt Protest. Hedge funds cut bullish bets on oil last week by the most in two months before political protests erupted in Egypt, igniting a rally that sent prices up by the most since 2009. The funds and other large speculators reduced net-long positions, or wagers on rising oil prices, by 18 percent in the seven days ended Jan. 25, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. That turned into a losing bet as prices surged at the end of the week. Oil jumped 4.3 percent Jan. 28, erasing the week’s losses.
  • Baht Set for Worst Monthly Fall in Almost 10 Years on Protests. Thailand’s baht is set for its biggest monthly slide since March 2001 on speculation global funds will trim holdings as nationalists block a Bangkok street to pressure the government in a border dispute with Cambodia. The currency dropped to its weakest level since September after overseas investors sold $81 million more Thai stocks than they bought last week, taking this month’s net sales to $904 million, according to exchange data. Political turmoil in Egypt also weighed on the baht, spurring investor appetite for safe-haven assets such as the dollar.
  • Rice Rebounds From Two-Year Drop as U.S. Crop Falls to 1989 Low. U.S. farmers are planting the fewest acres with rice since 1989 just as global demand surpasses production for the first time in four years, driving prices as much as 12 percent higher by December. Plantings in the U.S., the third-biggest shipper, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers.
  • Alpha Natural(ANR) Agrees to Buy Massey Energy(MEE) for $7.1 Billion in Cash, Stock. Alpha Natural Resources Inc., the third-biggest U.S. coal producer, agreed to buy Massey Energy Co. for about $7.1 billion in cash and stock, gaining the largest coal company in the U.S. Central Appalachian region. Massey shareholders will receive 1.025 Alpha Natural shares plus $10 cash for each share held, the companies said in a statement yesterday. The bid values Massey at $69.33 a share, 21 percent more than Massey’s price at the close of trading Jan. 28.
  • Boehner Says U.S. Default Would Be 'Disaster,' Isn't 'Even on the Table'. U.S. Speaker of the House John Boehner said today that a U.S. default would be a “financial disaster” and that the issue is not “even on the table.” Boehner said in an interview on “Fox News Sunday” that the Obama administration must be willing to work with Republicans to cut spending if it seeks an increase in the government’s debt ceiling. “I don’t think the American people will tolerate increasing the debt limit without serious reductions in spending and changes to the budget process so we can make sure this doesn’t happen again,” Boehner said.
  • Egypt's Banks Risk Deposit Run as Week of Violence Hits Economy. Egypt’s banks may risk a surge in customer withdrawals when they open for business, placing them among companies worst hit by the nationwide uprising against President Hosni Mubarak. “A run on the banks would be the biggest concern, which is possible in the current situation,” Robert McKinnon, chief investment officer at ASAS Capital in Dubai, said in a telephone interview. Authorities are likely to keep the financial system closed to avert the risk, he said. Egypt’s banks and markets stayed shut yesterday after six days of clashes in the most populous Arab country that left as many as 150 people dead. Tanks are guarding banks and government buildings in Cairo that are vulnerable to looting, state television said.
  • CNOOC Pays $570 Million for Stake in Chesapeake(CHK) U.S. Shale Play. Cnooc Ltd., China’s largest offshore energy producer, agreed to pay $570 million in cash for a one- third stake in Chesapeake Energy Corp.’s Niobrara shale project, adding to its U.S. holdings in crude oil production. The Chinese explorer also agreed to pay 66.7 percent of Chesapeake’s costs up to $697 million to drill and complete wells in the area, the companies said in a statement yesterday. The deal follows Chinese President Hu Jintao’s first state visit to the U.S. this month to expand economic ties, and would give Cnooc its second U.S. energy asset, five years after political opposition derailed its $18.5 billion bid for Unocal Corp. The Hong Kong-listed explorer will pay about $2,140 an acre for the one-third stake in Chesapeake’s 800,000 Niobrara acres and has the right to a 33.3 percent stake in future acquisitions in the formation in Colorado and Wyoming.
Wall Street Journal:
  • Opposition Unites in Egypt. Islamists, Secularists Back Moderate ElBaradei as Army Lets Protests Rage. Egypt's opposition groups lined up behind a moderate leader comfortable on the world stage as their best chance to oust President Hosni Mubarak Sunday, while the nation's military closed ranks with the government leadership but allowed protests to continue raging in the streets. The moves continued to sharpen the country's clash over whether Mr. Mubarak would resign. Events here present difficult choices for the U.S., which has been attempting to push for both the stability that the military offers and the sweeping political changes demanded by the opposition. There was no indication that the two sides would meet or hold discussions.
  • Syria Strongman: Time for 'Reform'. Syrian President Bashar al-Assad, who inherited a regime that has held power for four decades, said he will push for more political reforms in his country, in a sign of how Egypt's violent revolt is forcing leaders across the region to rethink their approaches. In a rare interview, Mr. Assad told The Wall Street Journal that the protests in Egypt, Tunisia and Yemen are ushering in a "new era" in the Middle East, and that Arab rulers would need to do more to accommodate their people's rising political and economic aspirations.
  • Unrest Rattles U.S. Approach in Region. Events Threaten to Weaken Other American Allies in Mideast, Imperils Strategy on Israel and Ira. Egypt's political turmoil risks setting off shifts that undermine broad American foreign-policy goals—and, say some U.S. and Arab strategists, could put Washington in its weakest position in the region in half a century.
  • Beijing Blocks Protest Reports. Chinese authorities have blocked the word "Egypt" from searches on Twitter-like microblogging sites in an indication of concern among Communist Party leaders that the unrest there could encourage similar calls for political reform in China. Internet censors also appeared Sunday to have deleted almost all of the comments posted beneath the few limited reports on the unrest—mostly from the state-run Xinhua news agency—that have been published on Chinese news sites in the past few days. The strict online controls illustrate the party's concern that the Internet is providing China's citizens with a new means of information and organization that could challenge its monopoly on power, as has happened with other authoritarian governments in recent years.
  • Hoarding Cotton. (Pics) Chinese cotton farmers may be stockpiling 1.94 million metric tons of cotton after a jump in prices, citing the government-funded China National Cotton Information Center.
  • Interview: PBOC Zhou: Must Be Vigilant On Inflation. The People's Bank of China must be vigilant on inflation and may need to tighten reserve requirements further to address rapid capital inflows, the central bank's governor warned Sunday. Speaking to Dow Jones Newswires on the sidelines of meetings in Kyoto, Zhou Xiaochuan pointed out that Chinese price growth slowed slightly in December, but he said it was stronger than many had forecast and signalled it had more room to climb. Rising consumer prices have prompted Beijing to launch a series of monetary-tightening measures, including two interest-rate increases and a number of bank reserve requirement ratio increases since the beginning of last year. "Inflation is still higher than many people expected. It may be still going up a little, so we should keep vigilant on that," Zhou said. Asked whether China needed to tighten banks' reserve requirements further to tackle rapid capital inflows, amid already excessive liquidity conditions, Zhou said: "Maybe we need to continue our efforts." Zhou declined to comment directly on the view by some economists that Chinese inflation could climb to around 6% in the first quarter of this year, but he agreed that it was still "to some extent going up."
  • China Opens a Door on Currency Swaps. China will allow banks to trade currency swaps for corporate clients starting March 1, extending the use of the financial derivative beyond the interbank market—a move that facilitates corporate foreign hedging as Chinese trade continues to expand and cross-border investments accelerate.
  • A Fund Manager Ensnared. A former Citigroup Inc. hedge-fund manager has been drawn into the government's insider-trading investigation as a co-conspirator in the case, and his firm has been raided by Federal Bureau of Investigation agents, according to people familiar with the matter. The hedge-fund manager—Samir Barai, the 39-year-old founder of New York-based Barai Capital Management—didn't return calls for comment.
  • US Corporate Profits Surge. With about 50% of companies already reporting, fourth-quarter profits for the biggest U.S. corporations have been exceptionally strong and 2010 is poised to deliver the third-best full-year gain since 1998—with sharp advances in the telecommunications and energy sectors and a rebound in financial services. Excluding financial companies, whose losses in 2009 skewed results, weighted earnings for the companies in the Standard & Poor's 500 Index are up 17% on an as-reported basis for companies representing 54% of the group's market value.
  • Inflation Stalks Emerging Markets. The political turmoil in Tunisia and Egypt is a reminder of the days when emerging markets were the Wild West of investing. While it is easy to dismiss events in those countries as unlikely to be repeated elsewhere, especially in Asian and Latin American nations with strong economic growth, investors in emerging markets are facing a much riskier landscape as a result of inflation.
  • The Two Likeliest Political Outcomes for Mubarak. Egyptian society needs time to prepare for free elections and to remediate years of government oppression.
  • Hedge-Fund Clones Attack. New mutual funds using hedge-fund strategies but with much lower fees, more transparency and lots of liquidity–and no lock-ups—are entering the market at a feverish pace, stepping up the competition with real hedge funds. Alternative-investment mutual funds enjoyed net inflows of $18.8 billion last year, reports Morningstar, up from $12.7 billion in 2009 and $4.6 billion in 2008—a horrendous year when Treasury-bond mutual funds and money markets were the only other entities attracting new money.
  • China Auditor: Illegal Activities at Top Insurers. China's audit office said Monday it uncovered "improper and illegal activities" involving CNY3.02 billion ($458 million) at two of the country's largest insurers, People's Insurance Co. (Group) of China Ltd. and China Life Insurance (Group) Co., during an audit of their 2009 books.
  • China Central Bank Says Fed Easing Ineffective and Dangerous. Quantitative easing by the Federal Reserve and other central banks cannot address fundamental economic problems but may lead to excessive global liquidity and competitive currency depreciation, China's central bank said on Sunday. The central bank said the Fed's monetary easing was pushing up international commodity prices and asset prices in emerging markets, including China. "It is creating imported inflation and short-term capital inflows, pressuring emerging markets," it said.
  • Inflation Slowing China's Export Engine. Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific. Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.
NY Times:
  • For Governors, Medicaid Looks Ripe for Slashing. Hamstrung by federal prohibitions against lowering Medicaid eligibility, governors from both parties are exercising their remaining options in proposing bone-deep cuts to the program during the fourth consecutive year of brutal economic conditions. Because states confront budget gaps estimated at $125 billion, few essential services — schools, roads, parks — are likely to escape the ax.
  • Bet on Gold Nets Paulson $5 Billion. John A. Paulson made $4 billion betting against newfangled mortgage investments. But he made even more betting on an old-fashioned investment: gold. Mr. Paulson, a hedge fund manager who sprang to fame when the housing market collapsed, personally made about $5 billion in 2010, according to two investors in his company. How? Mr. Paulson bought gold — lots of it. His firm, Paulson & Company, owns securities that represent the rough equivalent of 96 metric tons of the metal. It is an outsize wager by almost any standard. Mr. Paulson’s firm does not actually own all that gold. But if it did, it would be sitting atop more gold than the Australian government. Mr. Paulson himself would be holding more gold than Bulgaria.
  • Losses at Afghan Bank Could Be $900 Million. Fraud and mismanagement at Afghanistan’s largest bank have resulted in potential losses of as much as $900 million — three times previous estimates — heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to American, European and Afghan officials.
Business Insider:
Zero Hedge:
Boston Globe:
  • Headwinds at Year's End Slowed State Economy. The Massachusetts economy slowed significantly in the fourth quarter of 2010, lagging behind the US economy for the first time in a year, the University of Massachusetts reported yesterday. After a burst of growth in the first half of last year, the recent slowdown reflected a state economy that has “paused to catch its breath, rather than one that is about to slow to a stop,’’ analysts said in the report. Still, the weak performance was another reminder of what has been a difficult and sluggish economic recovery. “I expected a slowdown — maybe not quite this much — compared to the US rate of growth,’’ said Alan Clayton-Matthews, an economics professor at Northeastern University who prepared the estimates of state economic growth for the UMass report. “We still have a high unemployment rate and the econ omy still has a long way to go before it is in a sense ‘normal.’ ’’The Massachusetts economy grew at an annual rate of 1.8 percent in the fourth quarter, down from 3.6 percent in the third quarter, UMass said in its quarterly economics journal, MassBenchmarks.
CNN Money:
  • Credit Card Rates at Record Highs Near 15%. Interest rates are now hovering near record highs, at an average rate of 14.72%. And if your credit is bad enough, you could even end up with a rate as high as 59.9% APR. That's because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn't cap every credit card holder's worst enemy: interest rates.
  • Is Regime Change Ahead in Mideast? With the current protests in Egypt, following on the stunning events in Tunisia, it is worth considering whether the Arab Middle East is at a transformational moment. Could Egypt or Tunisia turn out to be the Poland of the Arab world? Could these secular, public protests be the first of many? Could they be setting in motion regime change throughout a region where the current governments have long been viewed as immutable and intransigent?
  • Cyber Raids Threaten British, US Stock Markets: Report. Stock exchanges in Britain and the United States have enlisted the help of the security services after finding out they were the victims of cyber attacks, The Times newspaper reported Monday. The London Stock Exchange (LSE) is investigating a terrorist cyber-attack on its headquarters last year while US officials have traced an attack on one of its exchanges to Russia, according to the British newspaper. Officials suspect the attacks were designed to spread panic among markets and destabilise western financial institutions. Cyber attacks on governments and companies increased more than 500 percent over the last two years and a raid on the European Emissions Trading Scheme ten days ago shut down the carbon market. A leading UK cyber security expert told the newspaper: "Make no mistake, the UK?s critical infrastructure is under attack. The threat is advanced and persistent."
  • Citi(C) May Hold Back Toxic Assets in Unit Sale. Citigroup Inc is open to holding back some toxic assets in a bid to get the most value from the sale of its consumer finance business, CitiFinancial, sources familiar with the situation said. Citigroup is asking for book value for the business, which is being looked at mostly by private equity firms, sources said. Private equity firms, including Fortress Investment Group, KKR and Blackstone Group, are among potential bidders, sources said.
  • Jordanians Rally Against Corruption and Poverty. Jordanian activists rallied outside government offices Saturday as they tried to step up their campaign to force Prime Minister Samir Rifai to step down. Inspired by unrest in Tunisia and elsewhere in the region, about 200 Jordanians gathered outside the prime minister's office shouting "Our government is a bunch of thieves" and holding banners reading "No to poverty or hunger." "We've come from distant, rural areas to Amman to ask Rifai to leave," said Mohammed Sunaid, a prominent labor activist. "We call for the overthrow of this government that has destroyed the poor. This government should be for all Jordanians not just the rich." Jordan is struggling with its worst economic downturn in decades. The government has announced measures to cut prices of essentials, create jobs and raise salaries of civil servants.
  • Sudanese Police Clash With Students in Khartoum. Sudanese police beat and arrested students on Sunday as hundreds protested throughout the capital demanding the government resign, inspired by a popular uprising in neighbouring Egypt. Armed riot police broke up groups of young Sudanese demonstrating in central Khartoum and surrounded the entrances of four universities in the capital, firing teargas and beating students at three of them. Some 500 young people also protested in the city of el-Obeid in North Kordofan in the west of the country. Police beat students with batons as they chanted anti-government slogans such as "we are ready to die for Sudan" and "revolution, revolution until victory". Groups have emerged on social networking sites calling themselves "Youth for Change" and "The Spark", since the uprisings in nearby Tunisia and close ally Egypt this month. "Youth for Change" has attracted more than 15,000 members.
  • Some Pharmaceutical Makers May Be Targets - Barron's. Major drug makers are looking for products by purchasing smaller companies, creating many value opportunities, Barron's reported in its Jan. 31 edition.
  • Egypt Muslim Brotherhood Says 34 Key Members Escape Prison.
Financial Times:
  • Brazil and China Trade Tensions Set to Rise. Trade tensions between Brazil and China are expected to increase after the Asian country emerged last year as the biggest foreign direct investor in Latin America’s largest economy. Analysis of data from Brazil’s central bank shows that China accounted for about $17bn of Brazil’s total FDI inflows in 2010 of $48.46bn, up from less than $300m in 2009, according to Sobeet, a Brazilian think-tank on transnational companies.
  • Egypt Protests: American's Secret Backing for Rebel Leaders Behind Uprising. The American government secretly backed leading figures behind the Egyptian uprising who have been planning “regime change” for the past three years, The Daily Telegraph has learned.
  • 'China Syndrome' Means Country Faces Dangerous Property Bubble. One of China's leading economists has said that the country is facing the possibility of a dangerous real-estate bubble and rising inflation which could put growth at risk. Yu Yongding, senior fellow at the Chinese Academy of Social Sciences (CASS) and former member of the monetary policy committee of the People's Bank of China, said that the demand for new property was so high that prices were in danger of soaring out of control. Speaking at the World Economic Forum in Davos, Mr Yongding said that China's authorities would have to act to calm the market and that the rate of growth would have to be lowered: "Definitely inflation is the biggest concern so far. At the same time we are concerned about a real estate bubble. "The demand for houses is still tremendous. So there is a tug of war between the central bank and the real estate developers. If the bank loosens [the property] policy there may be a re-emergence of a real estate bubble." CASS is affiliated to the State Council, one of the major government bodies in China. Mr Yongding's warning comes after a series of signals that markets are becoming concerned that the rapid rate of growth in China is not sustainable.
Frankfurter Allgemeine Sonntagszeitung:
  • Lars Feld, a member of German Chancellor Angela Merkel's council of economic advisers, said a restructuring of Greek debt is "necessary," citing an interview. Giving Greece more time to repay its loans would be the "best solution" as creditors wouldn't lose "too much money," Feld was quoted as saying. Europe needs an insolvency mechanism for states, he said. "We can't save half the euro area without consequences on our own refinancing costs," Feld said. The recent increase in German borrowing costs is an "alarm," he added.
Welt am Sonntag:
  • Gary Cohn, president and chief operating officer of Goldman Sachs Group Inc.(GS), said the economic recovery is "relatively unstable," citing an interview. Europe's fiscal crisis, zero-interest-rate policies in "more than one" of the Group-of-Eight countries and uncertainty about future banking regulation weigh on the outlook, Cohn said. Supervisors need to be more flexible, he added.
People's Daily:
  • China should not ignore the possibility of an "overheated" economy this year, citing Ba Shusong, a researcher at the State Council's Development Research Center. Consumer prices may remain high in the first quarter, Ba said. The strength of current tightening measures is"limited" and lags consumer price changes, citing Ba.
Shanghai Securities News:
  • China's consumer prices may rise more than 4% this year, Zhang Qianrong, a researcher with the State Information Center, wrote in a commentary.
China National Radio:
  • China's Kunming city will ban residents owning two homes from buying more property, citing Yunnan province's housing bureau vice chief Chen Xicheng. Residents from outside the Kunming region with one home will also not be allowed to make a second purchase. Kunming will issue more strict housing curbs soon, citing Chen.
China Finance:
  • China should raise interest rates to release a "stronger signal" on managing inflation expectations, Wang Jun, a researcher at the China Center for International Economic Exchanges, wrote in a commentary.
Weekend Recommendations
  • Made positive comments on (TYC).
Night Trading
  • Asian indices are -2.0% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 117.0 +7.5 basis points.
  • Asia Pacific Sovereign CDS Index 124.75 +5.25 basis points.
  • S&P 500 futures +.20%.
  • NASDAQ 100 futures +.18%.
Morning Preview Links

Earnings of Note
  • (XOM)/1.63
  • (GCI)/.81
  • (ITW)/.80
  • (IRF)/.49
  • (MCK)/1.11
  • (NVLS)/.94
  • (APC)/.21
Economic Releases
8:30 am EST
  • Personal Income for December is estimated to rise +.4% versus a +.3% gain in November.
  • Personal Spending for December is estimated to rise +.5% versus a +.4% gain in November.
  • The PCE Core for December is estimated to rise +.1% versus a +.1% gain in November.
9:45 am EST
  • Chicago Purchasing Manager for January is estimated to fall to 64.5 versus 66.8 in December.
10:30 am EST
  • Dallas Fed Manufacturing Activity for January is estimated to rise to 15.0 versus a reading of 12.8 in December.
Upcoming Splits
  • (PRGS) 3-for-2
  • (FCX) 2-for-1
Other Potential Market Movers
  • The Fed's Lockhart speaking, NAPM-Milwaukee report, (MO) Investor Day and the (DRI) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial 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 week.

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week modestly lower on profit-taking, increasing energy prices, more shorting, profit margin concerns, technical selling, rising Middle East tensions and emerging markets inflation worries. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.

Friday, January 28, 2011

Market Week in Review

S&P 500 1,276.34 -.55%*


The Weekly Wrap by

*5-Day Change

Weekly Scoreboard*


  • S&P 500 1,276.34 -.55%
  • DJIA 11,823.70 -.40%
  • NASDAQ 2,686.89 -.10%
  • Russell 2000 775.40 +.29%
  • Wilshire 5000 13,306.20 -.33%
  • Russell 1000 Growth 584.27 -.14%
  • Russell 1000 Value 648.04 -.62%
  • Morgan Stanley Consumer 741.42 -1.77%
  • Morgan Stanley Cyclical 1,056.24 +.24%
  • Morgan Stanley Technology 687.09 +.56%
  • Transports 4,994.93 -1.0%
  • Utilities 408.94 -1.06%
  • MSCI Emerging Markets 46.22 -1.24%
  • Lyxor L/S Equity Long Bias Index 1,040.11 -1.08%
  • Lyxor L/S Equity Variable Bias Index 866.46 -1.54%
  • Lyxor L/S Equity Short Bias Index 679.76 +.52%
  • NYSE Cumulative A/D Line +115,197 +2.76%
  • Bloomberg New Highs-Lows Index +493 +420
  • Bloomberg Crude Oil % Bulls 38.0 +52.0%
  • CFTC Oil Net Speculative Position +143,317 -13.95%
  • CFTC Oil Total Open Interest 1,499,599 +.51%
  • Total Put/Call 1.07 +35.44%
  • OEX Put/Call 2.12 +76.67%
  • ISE Sentiment 98.0 -16.95%
  • NYSE Arms 1.59 +93.90%
  • Volatility(VIX) 20.04 +8.50%
  • G7 Currency Volatility (VXY) 11.25 -2.60%
  • Smart Money Flow Index 10,106.81 +.55%
  • Money Mkt Mutual Fund Assets $2.758 Trillion -.10%
  • AAII % Bulls 42.04 -17.08%
  • AAII % Bears 34.29 +17.84%
Futures Spot Prices
  • CRB Index 335.44 +.43%
  • Crude Oil 89.35 +.27%
  • Reformulated Gasoline 245.45 -.36%
  • Natural Gas 4.33 -8.40%
  • Heating Oil 268.81 +1.05%
  • Gold 1,337.60 -.47%
  • Bloomberg Base Metals 261.41 +1.82%
  • Copper 435.70 +1.03%
  • US No. 1 Heavy Melt Scrap Steel 432.33 USD/Ton +14.27%
  • China Hot Rolled Domestic Steel Sheet 4,868 Yuan/Ton +1.33%
  • UBS-Bloomberg Agriculture 1,707.88 +.60%
  • ECRI Weekly Leading Economic Index 127.50 -1.09%
  • Citi US Economic Surprise Index +28.20 -10.4 points
  • Fed Fund Futures imply 69.3% chance of no change, 30.7% chance of 25 basis point cut on 3/15
  • US Dollar Index 78.16 -.10%
  • Yield Curve 278.0 -1 basis point
  • 10-Year US Treasury Yield 3.33% -7 basis points
  • Federal Reserve's Balance Sheet $2.426 Trillion +.80%
  • U.S. Sovereign Debt Credit Default Swap 51.41 +5.37%
  • California Municipal Debt Credit Default Swap 263.64 -4.21%
  • Western Europe Sovereign Debt Credit Default Swap Index 184.50 +3.17%
  • Emerging Markets Sovereign Debt CDS Index 206.61 +10.63%
  • 10-Year TIPS Spread 2.25% +7 basis points
  • TED Spread 16.0 +1 basis point
  • N. America Investment Grade Credit Default Swap Index 83.93 +1.18%
  • Euro Financial Sector Credit Default Swap Index 148.64 +2.66%
  • Emerging Markets Credit Default Swap Index 224.98 +11.83%
  • CMBS Super Senior AAA 10-Year Treasury Spread 199.0 +2 basis points
  • M1 Money Supply $1.853 Trillion +1.66%
  • Business Loans 623.40 +.48%
  • 4-Week Moving Average of Jobless Claims 428,800 +3.80%
  • Continuing Claims Unemployment Rate 3.2% +10 basis points
  • Average 30-Year Mortgage Rate 4.80% +6 basis points
  • Weekly Mortgage Applications 441.80 -12.86%
  • ABC Consumer Confidence -44 -1 point
  • Weekly Retail Sales +2.5% -20 basis points
  • Nationwide Gas $3.10/gallon -.02/gallon
  • U.S. Heating Demand Next 7 Days 4.0% above normal
  • Baltic Dry Index 1,186 -14.86%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 unch.
  • Rail Freight Carloads 213,206 -.13%
  • Iraqi 2028 Government Bonds 93.25 -1.70%
Best Performing Style
  • Small-Cap Value +.47%
Worst Performing Style
  • Large-Cap Value -.62%
Leading Sectors
  • Oil Tankers +5.28%
  • Oil Service +5.27%
  • Coal +3.33%
  • HMOs +2.24%
  • Computer Services +1.69%
Lagging Sectors
  • Alt Energy -1.65%
  • Banks -2.18%
  • Restaurants -2.74%
  • Disk Drives -2.78%
  • Foods -2.91%
One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Falling into Final Hour on Rising Mid-East Social Unrest, Surging Oil Prices, Emerging Markets Inflation Worries, Profit-Taking

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.46 +20.50%
  • ISE Sentiment Index 97.0 -11.01%
  • Total Put/Call 1.07 +4.90%
  • NYSE Arms 1.29 +48.70%
Credit Investor Angst:
  • North American Investment Grade CDS Index 83.93 +.82%
  • European Financial Sector CDS Index 148.85 bps +4.85%
  • Western Europe Sovereign Debt CDS Index 184.50 bps -.72%
  • Emerging Market CDS Index 224.49 +10.74%
  • 2-Year Swap Spread 22.0 +2 bps
  • TED Spread 16.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .14% unch.
  • Yield Curve 278.0 -3 bps
  • China Import Iron Ore Spot $185.30/Metric Tonne -.16%
  • Citi US Economic Surprise Index +28.20 -5.2 points
  • 10-Year TIPS Spread 2.26% +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -115 open in Japan
  • DAX Futures: Indicating -6 open in Germany
  • Lower: On losses in my Retail, Biotech and Tech long positions
  • Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades substantially lower on good volume, despite mostly positive economic data and diminishing eurozone sovereign debt angst. On the positive side, Coal, Oil Service and Oil Tanker shares are rising on the day. Copper is rising +.38% and lumber is rising +.48%. The 10-year yield is falling -6 bps to 3.33%. The Spain sovereign cds is falling -3.93% to 264.85 bps, the Italy sovereign cds is dropping -2.87% to 186.11 bps and the Ireland sovereign cds is falling -2.01% to 618.53 bps. On the negative side, Airline, Education, Retail, Construction, HMO, Biotech, Networking, Disk Drive, Semi, Software, Internet and Alt Energy shares are under significant pressure, falling more than -3.0%. The Brazil sovereign cds is rising +7.5% to 119.06 bps, the Russia sovereign cds is gaining +7.8% to 154.70 bps and the Egypt sovereign cds is climbing +3.9% to 390.80 bps. Moreover, the Emerging Markets Sovereign CDS Index is jumping +7.62% to 210.24 bps. China's 1yr swap rate is making another new multi-year high, rising +14 bps to 3.81%. The number of autos on ships anchored in global ports continues to trend higher, which indicates slowing demand from dealers. If unrest in the middle-east spreads and sends oil above $100/bbl, global equities will come under increasing pressure as inflation worries in emerging markets intensify, thus increasing the odds of hard economic landings in those economies. As well, a significant spike in energy prices would greatly damage consumer spending in developed economies. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting, emerging markets inflation fears, rising mid-east social unrest and surging oil prices.

Today's Headlines


  • Stocks Drop Worldwide as Oil, Dollar Surge After Egypt Protests. Stocks worldwide plunged the most since November, crude oil jumped and the dollar gained against the euro after protests in Egypt intensified and President Hosni Mubarak imposed a nationwide curfew. Egypt’s dollar bonds sank, pushing yields to a record high. The MSCI World All-Country World Index of stocks in 45 countries lost 1.3 percent at 12:23 p.m. New York time.
  • U.S. Economy Quickens on Gains in Spending, Exports. The U.S. economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years. Gross domestic product grew at a 3.2 percent annual rate, Commerce Department figures showed today in Washington, falling short of the 3.5 percent median forecast of 85 economists surveyed by Bloomberg News because of a slowdown in inventories. Excluding stockpiles, the economy rose at a 7.1 percent pace, the most since 1984. “The consumer really drove the economy in the fourth quarter,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who accurately forecast the rate of growth. “The economy has moved beyond recovery to a stable state of growth.” A separate report today showed consumer confidence fell less than expected in January, a signal the biggest part of the economy may extend the gains in spending. The Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December. Inventories last quarter were stocked at a $7.2 billion pace, down from a $121.4 billion rate in the third quarter. The slowdown subtracted 3.7 points from growth, the most since 1988. Leaner stockpiles may help set the stage for faster growth in the first half of this year.
  • Oil Rises Most Since 2009 on Concern Egyptian Unrest to Spread. Oil surged the most since September 2009 as unrest in Egypt raised concern that protests would spread to major oil-producing parts of the Middle East. Crude gained as much as 4.8 percent after a day of clashes between police and protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. The unrest in Egypt followed an uprising that led to the Jan. 14 overthrow of Tunisian President Zine El Abidine Ben Ali. “Tunisia isn’t a big oil producer, and Egypt isn’t a big oil producer, but it’s moving closer to the oil fields,” said Phil Flynn, vice president of research at PFGBest in Chicago. “This thing seems to be spreading from border to border.”
  • Gold Jumps Most in 12 Weeks on Haven Demand Amid Egypt Tensions. Gold futures jumped the most in 12 weeks on demand for a haven amid escalating tensions in Egypt. Tens of thousands of marchers chanted “liberty” and “change” as rallies began today at points across Cairo in the biggest challenge to Egyptian President Hosni Mubarak’s 30-year rule. Gold futures for April delivery rose $22.30, or 1.7 percent, to $1,342.10 an ounce at 12:19 p.m. on the Comex in New York, heading for the biggest gain since Nov. 4.
  • ECB's Tumpel-Gugerell Says Governments Failing to Meet Obligations to Euro. European Central Bank Executive Board member Gertrude Tumpel-Gugerell criticized governments for failing to fulfill their obligations in the monetary union, saying they must do a better job if the central bank is to guarantee the euro’s stability. “The crisis is clear evidence that parts of the common foundation of the economic and monetary union have not been implemented,” Tumpel-Gugerell said in a speech in Mainz, Germany, last night. “The ECB’s task is to ensure price stability. Confidence in the euro states and their finances can only be created by the states themselves, particularly through common effort.”
  • Saudi Arabia Credit-Default Swaps Jump 18.5 Basis Points to 93.50. The cost of insuring the sovereign debt of Saudi Arabia rose 18.5 basis points to 93.5, the highest level in almost a year, according to CMA prices for credit- default swaps.
  • Ackermann Says Bailout Risk Lurks for Hedge Funds. Deutsche Bank AG Chief Executive Officer Josef Ackermann said unregulated financial companies such as hedge funds may pose a systemic risk to the economy if oversight isn’t increased. “You have an unregulated area which becomes -- as a consequence of all the regulatory changes -- more and more important,” Ackermann, 62, said in an interview at the World Economic Forum in Davos, Switzerland. “You may one day wake up and realize that the systemic challenges are so big that you will have to bail out or at least help support the unregulated sector.” Ackermann’s warning echoes comments made by former U.S. Treasury Secretary Lawrence Summers, who said this week in Davos that regulators haven’t paid enough attention to problems that could emerge in “a large, less healthy buccaneer sector.” Hedge funds have dodged the brunt of new global banking regulation aimed at avoiding a repeat of the worst global financial crisis since the Great Depression.
  • Democratic Senator Who Shot Cap-and-Trade Bill in Ad Named to Energy Panel. The Senate committee with primary jurisdiction for U.S. energy policy added Joe Manchin, the former West Virginia governor who won office after using climate-change legislation for target practice in a 2010 ad. Manchin will join the Senate Energy and Natural Resources Committee, according to an e-mail yesterday from Bill Wicker, a committee spokesman. The panel, led by Senator Jeff Bingaman of New Mexico, plans to draft legislation that sets guidelines for how much electricity comes from sources such as coal, natural gas, wind and sun. West Virginia is the second-biggest coal-producing state after Wyoming, according to Energy Department data. In his commercial, Manchin loads a rifle and fires a single bullet into a copy of the cap-and-trade bill backed by President Barack Obama that would penalize utilities for using coal.
  • Japan's Bonds to Rise on Emerging-Market Tightening, DIAM Says. Japan’s bond may rise as interest- rate increases in emerging nations dim global growth prospects, spurring demand for the safety of debt, according to DIAM Asset Management Co. “With emerging nations such as China entering a monetary tightening mode, investors are becoming aware of risks to the economic outlook,” said Nobuto Yamazaki, an executive fund manager who helps oversee the equivalent of $12 billion at the Tokyo-based firm. “They appear to be wondering whether to keep buying commodities and stocks.”
  • China Said to Plan to Raise Capital Ratio When Credit Excessive. China may order its biggest lenders, including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., to raise capital ratios to as high as 14 percent when credit growth is judged excessive, said a person familiar with the matter. Newly proposed rules would require increasing capital adequacy buffers by as much as 2.5 percentage points when the banking regulator determines loan growth to be too fast, said the person, declining to be identified as the plan isn’t public.
  • Emerging Equity Funds Have Biggest Outflow Since 2008. Emerging-market equity mutual funds had their biggest weekly outflows since mid-2008 as investors speculated rising interest rates will curb economic growth, according to Citigroup Inc. The funds lost $3 billion during the week ended Jan. 26, Citigroup’s Hong Kong-based strategist Markus Rosgen wrote in a report today, citing data compiled by research firm EPFR Global. The outflows amounted to 0.4 percent of the funds’ assets, the most since May, Rosgen wrote. Investors are paring bets on shares in the fastest-growing economies after pouring more than $90 billion into emerging- market stock funds last year, the biggest-ever annual inflows, according to EPFR data.
  • IMF's Lipsky Says 'Never Say Never' on Another Possible Euro-Area Bailout. International Monetary Fund First Deputy Managing Director John Lipsky said the organization may have to provide further financial aid to so-called peripheral European countries if the region’s debt crisis doesn’t ease. “It certainly will depend on circumstances,” Lipsky said in an interview today with Bloomberg Television at the World Economic Forum in Davos, Switzerland, when asked if the IMF may have to provide assistance to more euro-area members. “Never say never.”
  • Dimon Says Deficits, Spending Are New Global Risk. The U.S. government’s estimated $1.5 trillion deficit and record government spending around the world are the biggest potential threats to the global economy, JPMorgan Chase Co.(JPM) Chief Executive Officer Jamie Dimon said. “I’m not just talking about just the United States,” Dimon said in an interview on Bloomberg Television in Davos, Switzerland today. “The governments have to show the will that we have this under control. Because you don’t want to get them under control of the markets the wrong way.”

Wall Street Journal:
  • Curfew Set As Regime Defies U.S. Calls. President Hosni Mubarak declared a curfew in riot-wracked Egyptian cities and army tanks began to enter streets to beat back protesters that took to the streets en masse Friday, as the Egyptian leader essentially defied U.S.'s recent urging to embrace reform.
  • Egypt Unrest Starts to Rattle Other Markets. The civil unrest in Egypt is gaining more attention among investors, and it could be one reason that the U.S. stock market is struggling at the end of the week. Given that events in Egypt come after the overthrow of the government in Tunisia, more people are wondering about political stability from Morocco to Lebanon. The Market Vectors Egypt Index (EGPT) ETF is down 20% since Jan. 14 and down 2.9% today on more than six times the daily average volume. Egypt’s credit-insurance costs have also spiked. According to Markit, a data provider, a credit-default swap to insure $10 million of Egyptian sovereign debt over five years has spiked 33% to $405,000. (Update: the CDS cost has jumped to $450,000 since this post was first made.)
  • Egypt Live Blog: Rolling Updates.
  • Schmidt Defends Incoming Google(GOOG) CEO. A week after announcing a management shakeup at Google, outgoing Chief Executive Eric Schmidt defended the credentials of company co-founder Larry Page, who will take the reins at the Internet giant in April. “When people criticize Larry as the new CEO, that’s grossly unfair to Larry,” he said on Thursday at a small press conference in Davos, Switzerland, at the World Economic Forum. “He has been with me at every business decision for 10 years.”Though he stayed largely behind the scenes while Mr. Schmidt was the public face of Google, Mr. Page has long called the shots on product initiatives.
  • France's Lagarde: We Have A Very Tense Monetary Situation. There is a very tense global monetary situation, including a problem of balance between the U.S. and China, French Finance Minister Christine Lagarde says in a television interview to be broadcast on French television channel LCI later Friday. "There are zones in the world where we are seeing monetary overheating," Lagarde says in the interview, noting the rise in the Brazilian real, the slow rise in the Chinese yuan and carry trades and capital movements that aim to benefit from different rates. "We have a situation that is extremely tense, especially on the monetary level," she says in the interview recorded Wednesday before her departure to Davos for the annual World Economic Forum. "The Brazilians are talking about currency wars, Americans have a real problem with balance and imbalance vis-a-vis China, whose currency is appreciating slowly and at China's rhythm," she added.
Business Insider:
Zero Hedge:
  • 410 Wounded in Cairo Protests on Friday.
  • China Rating Agency Blames U.S. for "Credit War". The ultra-loose monetary policy of the United States is setting the stage for "a world credit war," a Chinese rating agency said on Friday, in the latest warning against soaring debt burdens in developed economies.
  • Microsoft(MSFT) Shares Fall on Windows, Tablet Worries. Microsoft Corp shares fell more than 4 percent to a six-week low on Friday as investors took profits from a recent run-up in the stock and fretted about the strength of its core Windows franchise and the emerging threat from tablet computing.
  • ECRI Leading Economic Growth Gauge Falls to 6-Week Low. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 127.5 in the week ended January 21 from 128.9 the previous week. That was the lowest since December 10, 2010, when it stood at 127.2. The index's annualized growth rate fell to 3.5 percent from 4.1 percent a week earlier. That was the lowest since December 31, 2010, when it was 3.2 percent.
  • Monster(MWW) Shares Fall on Weak Q4 Revenue, Bookings. Shares of Monster Worldwide Inc fell as much as 22 percent on Friday, a day after the online recruiter posted lower-than-expected fourth-quarter revenue and bookings, mainly hurt by currency headwinds and lower government budgets.
  • Egyptian police used a water cannon on opposition leader Mohamed ElBaradei and his supporters at a protest.
Financial Times:
  • Egyptian Government On Last Legs, Says ElBaradei. Exclusive: Mohamed ElBaradei says he is sending a message 'to the Guardian and to the world'. The Egyptian dissident Mohamed ElBaradei warned President Hosni Mubarak today that his regime is on its last legs, as tens of thousands of people prepared to take to the streets for a fourth day of anti-government protests. The Nobel peace prize winner's comments to the Guardian represented his strongest intervention against the country's authoritarian government since he announced his intention to return to Egypt to join the protests. "I'm sending a message to the Guardian and to the world that Egypt is being isolated by a regime on its last legs," he said. His words marked an escalation of the language he used on arrival in Cairo last night, when he merely urged the Mubarak government to "listen to the people" and not to use violence.
Der Standard:
  • Willem Buiter, the former Bank of England Monetary Policy Committee member who is chief economist at Citigroup Inc.(C), said the U.S., U.K. and France don't deserve the highest credit ratings. "Ratings agencies give AAA ratings to countries that don't deserve it," Buiter said. Germany is "the most deserving" of the AAA rating "but even Germany has debt equal to 80% of GDP," he said. Greece and Ireland will likely be forced to restructure their debt, Buiter said. Europe's rescue fund is inadequate and won't be able to assist struggling countries out of their "debt holes," Buiter said.
  • Egyptian President Hosni Mubarak could be forced to relinquish his 30-year rule over the country "very quickly," opposition leader and Nobel Peace Prize winner Mohamed ElBaradei said. "Nobody though that in Tunisia things would change overnight," he said. "Things in the last days show that it can happen very quickly. If Mubarak continues like this, it will surely backfire."