Tuesday, January 31, 2012

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Profit-Taking, More Shorting, Technical Selling

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.48 +.41%
  • ISE Sentiment Index 90.0 -15.01%
  • Total Put/Call .88 -5.38%
  • NYSE Arms 1.41 -.56%
Credit Investor Angst:
  • North American Investment Grade CDS Index 102.58 -.79%
  • European Financial Sector CDS Index 184.41 -3.21%
  • Western Europe Sovereign Debt CDS Index 345.57 +.49%
  • Emerging Market CDS Index 268.87 +.04%
  • 2-Year Swap Spread 30.0 -3 bps
  • TED Spread 49.0 -1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -71.50 +1.5 bps
Economic Gauges:
  • 3-Month T-Bill Yield .05% unch.
  • Yield Curve 158.0 -4 bps
  • China Import Iron Ore Spot $142.40/Metric Tonne +1.79%
  • Philly Fed ADS Real-Time Business Conditions Index .0250 unch.
  • Citi US Economic Surprise Index 53.20 -10.3 points
  • 10-Year TIPS Spread 2.10 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +9 open in Japan
  • DAX Futures: Indicating +31 open in Germany
  • Slightly Higher: On gains in my Biotech, Medical and Tech sector longs
  • Disclosed Trades: Added to my (IWM), (QQQ) hedges and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower, but near session highs, despite falling Eurozone debt angst, falling energy prices and gains in overseas equities. On the positive side, HMO and Disk Drive shares are especially strong, rising more than +.75%. Financial and Tech shares are outperforming. Oil is falling -.45% and Lumber is jumping +4.2%. Oil continues to trade poorly given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and soaring Mid-east tensions. Major Asian indices rose around +.75%, led by a 1.96% gain in India shares. Major European equity indices rose around +.5%, led by a +1.04% gain in France shares. Spanish stocks fell slightly and remain Europe’s worst-performers, dropping -.31% ytd. The Portugal sovereign cds is falling -3.0% to 1,480.63 bps and the Italian/German 10Y Yld Spread is falling -3.1% to 416.70 bps. Moreover, the European Investment Grade CDS Index is falling -2.45% to 131.84 bps. On the negative side, Coal, Alt Energy, Hospital, Homebuilding and Retail shares are under pressure, falling more than -1.0%. Copper is falling -.81%, the UBS-Bloomberg Ag Spot Index is up +.74% and Gold is rising +.55%. The France sovereign cds is gaining +2.55% to 181.17 bps, the Japan sovereign cds is gaining +1.4% to 138.25 bps and the Russia sovereign cds is rising +1.22% to 224.67 bps. The Portugal sovereign cds is up +37.9% in 12 days and just off its all-time high. Lumber has declined -9.0% since its Dec. 29th high and is still near the lower end of its recent range(near a multi-year low) despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is falling -5 bps to 1.80% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Weekly retail sales rose +2.7% this week versus a +2.9% gain the prior week. This is now a sub-par pace for a recovery and the slowest growth since the week of April 5th of last year. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still near its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -21.3% since Sept. 7th of last year. Shanghai Copper Inventories are up over +300.0% ytd to the highest level since March of last year. I still believe that a more cautious approach is warranted in the short-term given that several key investor sentiment gauges are registering too much complacency, stocks are technically extended, global growth is still slowing and Eurozone debt angst could flare again at any time. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on falling Eurozone debt angst, more financial/tech sector optimism, short-covering and falling energy prices.

Today's Headlines

  • Greece Fights for Second Bailout as EU Leaders Seal Accord. Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months. Greek Premier Lucas Papademos said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government. Stocks rose after European Union leaders endorsed key planks of a strategy to fight the financial crisis, agreeing to accelerate the setup this year of a full-time 500 billion-euro ($659 billion) rescue fund and backing a deficit-control treaty. EU and International Monetary Fund officials are in Athens thrashing out budget measures that would unlock the aid needed to keep the government functioning. Leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole -- and no announcement of how deep the need is. German Chancellor Angela Merkel voiced frustration with the Greece’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
  • Italy's Jobless Rate Rose to Highest Since 2004 in December. Italy’s jobless rate rose to the highest in eight years in December as austerity measures meant to fight the debt crisis helped push the region’s third-largest economy toward a recession. Unemployment climbed to 8.9 percent, the highest since the data series began in January 2004, from a revised 8.8 percent in November, national statistics institute Istat said in a preliminary report today in Rome. Economists had expected a rate of 8.7 percent, according to the median of 9 estimates in a Bloomberg News survey. Prime Minister Mario Monti last month pushed through 20 billion euros ($26 billion) in tax increases and spending cuts that have further choked growth. The economy shrank 0.2 percent in the third quarter and the government has forecast another contraction in the final three months of last year, meaning Italy may already be in its fourth recession since 2001. “We are seeing all the predictable signs of Italy’s deepening recession -- rising unemployment, non-performing loans trending up, and credit standards getting tighter,” Vladimir Pillonca, an economist at Societe Generale SA in London, said in an e-mail. “We are barely at the initial phase of Italy’s recession, and it will get much worse.”
  • EU, IMF Demand 20% Cut in Greece's Minimum Wage, Ta Nea Reports. A mission to Greece by the European Commission, the European Central Bank and the International Monetary Fund wants the country’s minimum wage cut to 600 euros ($791) a month, from 751 euros, Ta Nea reported, without saying how it got the information. The delegation from the three institutions, known as the troika, is setting conditions for a new financing package for Greece that include reforms such as abolition of special labor agreements at state enterprises and banks, the Athens-based newspaper said. The troika officials rejected a proposal from Greece’s Labor Ministry to freeze private-sector salaries for three years and is demanding that twice-yearly holiday bonus payments are reduced or abolished, Ta Nea said.
  • Fed's Inflation Goal May Raise Issues, Bini Smaghi Writes in FT. The Federal Reserve’s decision to set a numeric inflation goal over the longer run may raise communication issues, former European Central Bank Executive Board (EURR002W) Member Lorenzo Bini Smaghi wrote in the Financial Times. Monetary policy produces its effects with two or three-year lags, meaning a longer-term inflation objective makes the inflation forecasts and the policy decision “unclear,” as the long-run isn’t a “policy-relevant” time frame, Bini Smaghi wrote in an article posted on the newspaper’s website today. The publication of the 17 Federal Open Market Committee members’ expectations of the Fed funds rate over the next few years may also raise “several questions,” he said. The market needs to know what forecasting model is used by FOMC members to update their interest-rate expectations, as they are conditional on the state of the U.S. economy, he wrote. “The suspicion may arise that the interest rate forecasts are ultimately dictated by the members’ short-term policy preferences, rather than by their ability to predict prices over the long-term,” Bini Smaghi said. The concept of a conditional interest-rate forecast may also not be understood by the public and politicians, which may lead to misunderstandings, the Italian economist wrote. “To be effective, central bank communication needs to be well understood not only by sophisticated market participants but also by the public,” Bini Smaghi said. “As they are currently designed, the new tools might turn out to be too complex, and risk creating confusion, for both groups.”
  • Confidence Decline Points to Cooling U.S. Growth. Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010. The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.
  • UPS(UPS) Profit Forecast Tops Estimates. United Parcel Service Inc. (UPS), the world’s largest package-delivery company, forecast a 2012 profit that exceeded analysts’ estimates as shipping demand increases. Annual earnings, excluding some items, will be in the range of $4.75 to $5 a share, the Atlanta-based company said today in a statement. That topped the average estimate of $4.78 in a Bloomberg survey of 25 analysts.
  • Exxon(XOM) Drops After Fourth-Quarter Sales Are Lower Than Estimates. Exxon Mobil Corp., the world’s largest energy company by market value, declined after fourth- quarter sales fell short of analysts’ estimates and oil production slumped on five continents. Revenue rose 16 percent to $121.6 billion during the quarter, less than the $124.4 billion average of five analysts’ estimates compiled by Bloomberg. Exxon fell 1.9 percent to $83.90 at 1:42 p.m. in New York after earlier declining as much as 2.4 percent, the biggest intraday drop since Dec. 12.
  • Iron Ore Set for Worst Month Since October on Slowdown Concerns. Iron ore headed for the worst monthly performance since October amid concern that slowing global economic growth and Europe’s sovereign-debt crisis may curb demand for the raw material used in steelmaking. Iron ore with 62 percent content delivered to the Chinese port of Tianjin was little changed at $139.90 per metric ton yesterday, data from The Steel Index showed. The price is up 1 percent this month after falling 31 percent in October and rebounding 11 percent in November and 5.8 percent last month. China, the largest steelmaker, boosted annual output by the slowest pace in three years in 2011 as the nation’s economy cooled last quarter, cutting demand from makers of houses and autos. European leaders are sparring with Greece over a second rescue program, leaving a Brussels summit yesterday with no accord over how to plug the nation’s widening budget deficit. “World growth is going to be a bit subdued, and very anemic in Europe, so there’s not going to be any push for stronger iron ore prices,” said Michael Heffernan, a Melbourne- based client adviser at Austock Securities Ltd. “You’re not going to see iron ore prices skyrocket.”
  • Iran Stepping Up Spying, Support for Terror, Clapper Says. Iran is stepping up its support for international terrorism and its intelligence operations against the U.S., the Director of National Intelligence told Congress. “The 2011 plot to assassinate the Saudi ambassador to the United States shows that some Iranian officials -- probably including Supreme Leader Ali Khamenei -- have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived actions that threaten the regime,” James Clapper said in a statement today to the Senate Intelligence Committee.
Wall Street Journal:
  • CBO: TARP Spending Will Be $61 Billion More in Fiscal 2012. The federal government will spend roughly $61 billion more in fiscal 2012 than it did in fiscal 2011 on its continuing emergency rescue fund instituted at the height of the 2008 financial crisis, the nonpartisan Congressional Budget Office said. This is largely due to declines in share prices of two companies in which the government still holds substantial shares: American International Group Inc.(AIG) and General Motors Co(GM). The two were among dozens of firms that received hefty bailouts from the federal government at the end of 2008 or early 2009. Between them, the Treasury and New York branch of the Federal Reserve still control a 77% stake in AIG. The firm received a total of $184 billion in loans and guarantees from the Treasury and Fed as it stood on the brink of collapse in 2008. The federal government owns a 32% stake in GM.
  • Deficit Again Expected to Top $1 Trillion. The federal budget deficit likely will top $1 trillion for the fourth consecutive year in fiscal 2012 as the economy continues to grow at a sluggish pace, the nonpartisan Congressional Budget Office predicted Tuesday. Congress's official budget scorekeeper projected a sober outlook in its semi-annual report Tuesday, forecasting that the unemployment rate will remain above 8% both this year and next year and above 7% until 2015. The economy will see a "continued slow recovery" as real gross domestic product grows 2% this year, measured from the fourth quarter of the previous calendar year, and by 1.1% next year.
  • S&P Warns of Cuts; Another Downgrade Coming? Concerns over the size of United States debt reared their head once again as ratings agency Standard & Poor’s warned that health care costs for a number of highly-rated Group of 20 countries, including the U.S., could hurt growth prospects and harm their sovereign creditworthiness from the middle of this decade.
  • Europe's Central Bank Can't Fix 'Dysfunctional' EU: Gross. The European Central Bank won't solve the euro zone's debt crisis as long as the European Union behaves like a "dysfunctional" family, Bill Gross, Pimco founder and co-chief investment officer, told CNBC on Tuesday.
Business Insider:
Zero Hedge:
Chicago Tribune:
  • Insight: Borrowing Spree Pushes Canadians to Edge of Debt Cliff. The growth of household debt in Canada to levels approaching those seen in the United States before the 2008-2009 crash seems to be keeping a lot of people awake - from central bankers to economists, lenders, real estate agents and the indebted consumers. Bank of Canada Governor Mark Carney has warned that the ratio of debt to income will rise from the already alarming 153 percent record reached last year, and many think it will approach the landmark 160 percent hit by the United States before the U.S. tipped into crisis more than three years ago.



  • Poll: Public Says Keystone XL Pipeline Would Be Jobs Creator. Congressional Republicans and proponents of TransCanada's Keystone XL pipeline have successfully put the issue on the map, as 78 percent of Americans believe the pipeline would create a “significant amount of jobs,” according to a late December poll by GOP pollster David Winston.
The Week:
Financial Times:
  • US Reits Are Drawn to Subprime Securities. Real estate investment groups in the US are set to raise more funds to buy subprime and other private mortgage-backed securities, aided by attractive returns and rising share prices. Real estate investment trusts, or Reits, have already been big buyers in the market for packages of mortgages backed by Fannie Mae, Freddie Mac and other government agencies, creating what some have termed a “shadow” financing system for US mortgages.


La Tribune:

  • French new car registrations fell 27% from Jan. 1 to Jan. 27 versus the year-earlier period. Renault SA's new French car registrations fell 45% in the period while PSA Peugeot Citroen had a 37% decline.
El Economista:
  • Spanish Prime Minister Mariano Rajoy expects forthcoming labor reforms in Spain to provoke strikes among workers.
Shanghai Daily:
  • Chinese Banks See Top 3 Risks to System. CHINESE banks have listed credit and macro-economic risks as well as liquidity to be the top three threats to the country's banking industry, a latest industry survey showed yesterday. Their overseas peers picked macro-economic risk as the top threat, according to the survey conducted by the London-based think tank, Centre for the Study of Financial Innovation, which interviewed 700 bankers in 58 countries and regions. Chinese bankers ranked the quality of risk management their No. 4 concern, compared with the global ranking of No. 10. The survey said Chinese bankers were worried that the current risk management system may not be strong enough to address global economic changes, especially as there didn't seem to be an end in sight for the eurozone debt crisis. Chinese bankers were concerned about asset quality due to China's cleanup of local government financing vehicles. They also worried about challenges in the property market and doubts about the macro-economy. Jimmy Leung, a PwC partner, said Chinese banks face risks as "the resulting credit risks may lead to liquidity challenges and impact the pace of business growth."
China National Radio:
  • The size for the official manufacturing PMI survey will be increased to about 3,000 samples from the current 820, citing Meng Qingxin, a director in the service industry survey dept. at the National Bureau of Statistics. The sample size for the non-manufacturing PMI survey will rise to about 8,000 from 1,200.

Bear Radar

Style Underperformer:

  • Large-Cap Value -.30%
Sector Underperformers:
  • 1) Alt Energy -1.90% 2) Homebuilders -1.80% 3) Retail -1.76%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) LXK 2) RSH 3) RIO 4) ITW 5) KRE
Stocks With Most Negative News Mentions:
  • 1) RSH 2) PCL 3) CVX 4) ADM 5) WDR

Bull Radar

Style Outperformer:

  • Large-Cap Growth -.32%
Sector Outperformers:
  • 1) HMOs +1.47% 2) Utilities +.06% 3) Defense +.05%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) RSH 2) MAT 3) ZAGG 4) LNC 5) ENDP
Stocks With Most Positive News Mentions:
  • 1) LMT 2) PRXL 3) MAT 4) FWLT 5) BA

Tuesday Watch

Evening Headlin
  • EU Nears Greek Confrontation as Portugal Poses Looming Risk. European governments moved toward a confrontation over a second rescue package for Greece, just as a dimming fiscal outlook in Portugal opened a new front in the debt crisis. Euro leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.” Bargaining with Greece over a debt writedown and its economic management overshadowed efforts to point the way out of the financial crisis. EU chiefs agreed to speed the setup of a full-time 500 billion-euro ($654 billion) rescue fund and signed off on a German-inspired deficit-control treaty. The summit was the 16th in the two years since the Greek debt emergency provoked a Europe-wide drama, leading to unprecedented aid packages for Greece, Ireland and Portugal and shattering European faith that the common currency was indestructible. After the gathering of European leaders, EU President Herman Van Rompuy convened a smaller group, including Greek Prime Minister Lucas Papademos and European Central Bank Executive Board member Joerg Asmussen, to weigh the next steps on Greece.
  • Coal-Carrier Rates Seen at Decade-Low as Glut Expands: Freight. The greatest number of coal cargoes in history still won’t be enough to eliminate a glut of Panamax vessels, driving charter rates to the lowest in a decade. Shipments will rise 3.6 percent to 956 million metric tons this year, according to London-based Clarkson Plc, the world’s biggest shipbroker. Rates for Panamaxes, each about 750-feet long, will average $12,744 a day in 2012, the lowest since 2002, the median of 10 analyst estimates compiled by Bloomberg shows. While that implies losses for ship owners, investors may profit by buying forward freight agreements, traded by brokers and used to bet on future costs, which anticipate $10,107. Panamax charter costs already tumbled 53 percent since Jan. 1, the worst start to a year since at least 1999, as the fleet expanded for a 35th consecutive month. “Demand looks good, but it’s just going to be massively outweighed by new vessels,” said Will Fray, a senior analyst at Maritime Strategies International Ltd., a London-based research company. “There’s unlikely to be enough mining output to soak up the enormous new capacity.”
  • Wind Purchases, Deals to Fall in 2012 as Sinovel Profits Halved. Purchases of wind turbines and other equipment will decline 18 percent this year and won’t return to 2011 levels for five years, reducing profits at companies including Sinovel Wind Group Co. (601558), according to Bloomberg New Energy Finance. Capital investment in wind-power assets worldwide will be $60.8 billion in 2012, down from $74.6 billion last year, as oversupply and waning government support in the U.S. and Europe cut demand. Total installations will decrease 13 percent to 47 gigawatts and will remain little changed until 2019, said Justin Wu, head of wind analysis at New Energy Finance. Sinovel, China’s top turbine maker, said yesterday it expects 2011 profit to decrease by more than half from 2.86 billion yuan ($451.6 million) in 2010. Vestas Wind Systems A/S (VWS) this month cut 10 percent of its staff after twice reducing sales forecasts since October.
  • S&P's Ogawa Says Japan Can't Conquer Debt Woes With Doubled Tax. Doubling Japan’s sales tax by 2015 won’t be enough to contain the nation’s growing debt load and the government needs to outline how it will pay for swelling social-welfare expenses, a Standard & Poor’s analyst said. “There’s no way that would be enough,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in a phone interview yesterday, referring to the plan to raise the levy by 5 percentage points. “No matter how high the sales tax is raised, there’s no point unless the government does something with the social-welfare system.” Japan’s government said last week that it will probably miss its goal of balancing the budget by fiscal 2020 even with the sales tax increase, yet to be approved by opposition lawmakers. Social-security expenses have more than doubled over the past two decades and will account for 52 percent of general spending in the year starting April, Finance Ministry data show.
  • BlackRock's(BLK) Doll Says QE3 Unlikely in Contrast to Pimco's Gross. BlackRock Inc., the world’s biggest asset manager, says the Federal Reserve will refrain from conducting a third round of debt purchases as the economy grows. The outlook contrasts with that of Bill Gross, who runs the largest bond fund at Pacific Investment Management Co. and says the Fed may buy several more times. The central bank has purchased $2.3 trillion of debt in two rounds of quantitative easing known as QE1 and QE2 as it seeks to support the world’s biggest economy. Chairman Ben S. Bernanke said Jan. 25 that he’s considering another program of purchases. “QE3 will be seen only if the U.S. economy flags,” Bob Doll, chief equity strategist at BlackRock, which oversees $3.51 trillion, said today on Bloomberg Television’s “First Up” with Susan Li. “Ben Bernanke will use it if we have a rainy day and only then,” said Doll, who is based in Princeton, New Jersey.
Wall Street Journal:
  • Florida Vote Sets Stage for Final Push.
  • NYC Shifts On Teacher Evaluations. After months of talks with the teachers union, the Bloomberg administration is asking Gov. Andrew Cuomo to help put an end to the labor dispute by scrapping the state's teacher evaluation law.
  • U.S. Gets Tougher on Debt Collecting. The Federal Trade Commission intensified its crackdown on the booming debt-collection industry, announcing a $2.5 million settlement with a company for allegedly coercing borrowers into paying debts they no longer legally owed. The settlement with Asset Acceptance Capital Corp., one of the nation's largest buyers of soured consumer debts, is the second-biggest penalty ever levied by the FTC against a debt collector. Officials said they are investigating other companies for alleged violations of federal law and expect to announce more enforcement actions soon.
  • Cutoff Looms on Loan Accord. State attorneys general have until Friday to join a potential national settlement of alleged foreclosure abuses, according to a document reviewed by The Wall Street Journal.
  • Group of Americans Takes Shelter at Cairo Embassy. A group of Americans who have been prohibited by Egypt's ruling military from leaving the country have taken refuge at the U.S. Embassy in Cairo in the midst of an Egyptian crackdown on pro-democracy and human-rights organizations and their staff.
  • NYC New Construction Slid 31% in 2011. New York City's construction industry was dealt another tough year as the value of construction projects that began in 2011 sank 31% compared with 2010, new data released on Monday said. Reduced government spending on infrastructure and very few new, large commercial buildings contributed to the building industry's poor 2011. The value of construction starts fell by $6.2 billion in 2011 to $13.8 billion, according to the analysis by the New York Building Congress, an association representing real-estate developers and construction companies.
Business Insider:
  • Papademos: Greece Could Need More Public Funding. Greece's prime minister says he cannot exclude the possibility that his country will need more help — on top of a new €130 billion ($170.43 billion) bailout and a deal with private investors to slash its debt.
Zero Hedge:
NY Times:
  • Trade Protest Is Planned on Eve of a Chinese Leader's Visit. As the White House prepares for a Washington visit by the man who is expected to run China for the coming decade, trade tensions between the United States and Beijing are on the rise.
  • Portugal Suffers as Loss of Confidence in Bonds Sends Yields Higher. Investors fled out of bonds of weaker European countries on Monday, sending yields on Portuguese government bonds to a record high over concerns that the euro zone debt troubles were spreading beyond Greece. The fears of contagion spreading to other periphery countries in the zone that share the euro have grown more intense in recent months, with much of the latest focus on Portugal.
  • Greece Needs to Dump Euro "shackles": Commerzbank. Greece must surrender the "shackles" of the euro in order to survive if it does not want to constantly ask for a handout from euro zone governments, the supervisory board chairman of Commerzbank said late on Monday. "What do they need, another 15 billion euros? If you think that is the last 15 billion that they will have miscalculated, then best wishes," Klaus-Peter Mueller told an industry event in Frankfurt."They will come back for more and there will be no end, unless you really see them enact structural reforms, but this won't take just two-three years -- we're talking 20, 30 or 40 years for Greece. "Mueller said it doesn't do any good to Greece were euro zone governments to continue forcing them to wear the "shackles" of a currency that only permits internal adjustments via spending cuts and declining wages."The Greeks need on balance a currency that they can then devalue," Mueller said, adding it would take a long time before the government could build up from scratch functioning structures that restore competitiveness.Athens and its EU partners have long ruled out a euro exit, which could drag the bloc even deeper into crisis. However, earlier in January a Greek government spokesman said the country would have to leave the euro zone if it fails to clinch a deal on a second, 130 billion euro bailout with its international lenders. The chairman of Germany's second largest listed lender disagreed that an exit would prompt "global chaos" and cause investors to dump sovereign debt from other periphery countries like Italy and Spain. "I don't think that markets would react negatively towards the other countries that would then remain in the euro zone after such a decision," he said.
  • RadioShack(RSH) Sees Profit Drop on Sprint Weakness. RadioShack Corp (RSH.N) issued a disappointing fourth-quarter earnings forecast on "significant declines" in its Sprint wireless business and the shares of the struggling electronics retailer tumbled more than 18 percent on Monday.
Financial Times:
  • Portuguese Storm Gathers as EU Leaders Fight Over Greece. Surging borrowing costs in Portugal have raised the spectre of a second full-fledged contagion crisis in the eurozone, eclipsing the latest efforts by European Union leaders in Brussels to agree on Europe's bail-out machinery and a strategy for Greece. Yields on Portuguese 10-year bonds hit a fresh record of 17.38pc on Monday even though the country is already shielded by a €78bn (£65.2bn) package from the EU, European Central Bank (ECB) and International Monetary Fund "troika" and does not have to tap the markets this year. Reports also emerged on Monday night that European banks were gearing up to ask the ECB's emergency funding scheme for up to twice as much in funds as the central bank supplied in its debut €489bn auction last month. The news reveals the extent of the liquidity squeeze on banks – with some chief executives looking to tap the ECB for up to triple the amount they originally borrowed, when the three-year money auction takes place on February 29.

Yonhap News Agency:

People's Daily:
  • China's textile industry outlook may be "relatively grim" in the first half, citing Wang Tiankai, president of the China National Textile and Apparel Council. Export companies may face increasing lack of demand, competitive pressure and trade friction, Wang said.
Evening Recommendations
  • Rated (WSM) Buy, target $42.
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 187.0 +3,5 basis points.
  • Asia Pacific Sovereign CDS Index 149.0 +3.25 basis points.
  • FTSE-100 futures +.49%.
  • S&P 500 futures +.09%.
  • NASDAQ 100 futures +.18%.
Morning Preview Links

Earnings of Note
  • (LLL)/2.41
  • (VLO)/-.18
  • (X)/-.86
  • (BIIB)/1.49
  • (XOM)/1.98
  • (MHP)/.57
  • (DHR)/.78
  • (MAT)/1.00
  • (LLY)/.81
  • (PFE)/47
  • (PNR)/.54
  • (LXK)/1.16
  • (ADM)/.76
  • (OSK)/.36
  • (UPS)/1.26
  • (PCAR)/.79
  • (ITW)/.88
  • (AVY)/.46
  • (CHRW)/.68
  • (UIS)/1.47
  • (AFL)/1.51
  • (BXP)/1.19
  • (JLL)/2.24
  • (BCR)/1.68
  • (BRCM)/.65
  • (AMZN)/.17
  • (AMG)/1.73
Economic Releases
8:30 am EST
  • The 4Q Employment Cost Index is estimated to rise +.4% versus a +.3% gain in 3Q.

9:00 am EST

  • S&P/CS 20 City MoM% SA for November is estimated to fall -.5% versus a -.62% decline in October.

9:45 am EST

  • Chicago Purchasing Manager for January is estimated to rise to 63.0 versus 62.2 in December.

10:00 am EST

  • Consumer Confidence for January is estimated to rise to 68.0 versus 64.5 in December.

Upcoming Splits

  • (CMN) 3-for-2
  • (TJX) 2-for-1
Other Potential Market Movers
  • The NAPM-Milwaukee for January, weekly retail sales reports and the (DLR) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and tech 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.

Monday, January 30, 2012

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Less Financial Sector Optimism, Global Growth Fears, Profit-Taking

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.40 +4.70%
  • ISE Sentiment Index 103.0 -25.90%
  • Total Put/Call .94 +6.82%
  • NYSE Arms 1.23 -28.41%
Credit Investor Angst:
  • North American Investment Grade CDS Index 103.40 +2.24%
  • European Financial Sector CDS Index 190.50 +7.50%
  • Western Europe Sovereign Debt CDS Index 345.0 +4.08%
  • Emerging Market CDS Index 267.88 +.88%
  • 2-Year Swap Spread 33.0 +1 bp
  • TED Spread 50.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -73.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .05% unch.
  • Yield Curve 162.0 -7 bps
  • China Import Iron Ore Spot $139.90/Metric Tonne +.07%
  • Philly Fed ADS Real-Time Business Conditions Index .0250 -4.21%
  • Citi US Economic Surprise Index 63.50 -1.9 points
  • 10-Year TIPS Spread 2.09 -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -41 open in Japan
  • DAX Futures: Indicating +27 open in Germany
  • Slightly Lower: On losses in my Biotech, Medical and Retail sector longs
  • Disclosed Trades: Added to my (IWM), (QQQ) hedges and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades lower, but near session highs, on more global growth fears, profit-taking, high energy prices, less financial sector optimism and rising Eurozone debt angst. On the positive side, Oil Tanker, Computer Service and Airline shares are especially strong, rising more than +.5%. The UBS-Bloomberg Ag Spot Index is falling -1.65%, gold is declining -.54%, Lumber is gaining +1.89% and Oil is down -.70%. Oil continues to trade poorly given the recent uptick in saber-rattling from Iran, escalating violence in the Mid-east, better US economic data and euro bounce. On the negative side, Bank, REIT, Coal, Alt Energy, Oil Service, Steel, Semi, Networking, Hospital, Construction, Homebuilding and Education shares are under pressure, falling more than -1.0%. (XLF) has underperformed throughout the day. Copper is falling -1.52%. The Germany sovereign cds is rising +7.1% to 91.50 bps, the France sovereign cds is gaining +6.45% to 176.33 bps, the Spain sovereign cds is rising +7.66% to 381.67 bps, the Italy sovereign cds is jumping +7.4% to 427.67 bps, the Belgium sovereign cds is rising +3.89% to 249.83 bps, the UK sovereign cds is gaining +2.94% to 80.33 bps and the Japan sovereign cds is rising +3.0% to 136.33 bps. The Portugal sovereign cds is up +5.2% to 1,510.0 bps(+39.6% in 11 days to new record high). The Portugal 10Y Yld is soaring +217 bps to 17.39%. The Italian/German 10Y Yield Spread is rising +5.2% to 424.89 bps. Lumber has declined -11.5% since its Dec. 29th high and is still near the lower end of its recent range(near a multi-year low) despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is falling -5 bps to 1.84% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still near its Jan. 9th all-time high. The TED spread is near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is near the highest since February 2009. The Libor-OIS spread is still very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, the improvement in credit gauges appears to be stalling at still stressed levels, which is liklely related to rising concerns surrounding Portugal. China Iron Ore Spot has plunged -22.8% since Sept. 7th of last year. Shanghai Copper Inventories are up over 300.0% ytd to the highest level since March of last year. Major Asian indices were down around -1.5% overnight, led lower by a -2.15% decline in India shares. The Shanghai Composite re-opened from the holidays and fell -1.5%, led lower by a -2.75% decline in the Shanghai Property Index. Major European indices fell around -1.25%, led down by France’s -1.6% decline. As well, the Bloomberg European Bank/Financial Services Index fell -3.15%. The market’s focus is rapidly moving from Greece to Portugal, which appears headed for another bailout. Many are suggesting that the issues in Europe are priced into stock prices at current levels, however recent history suggests otherwise. Furthermore, given that several key investor sentiment gauges are registering too much complacency and stocks are technically extended, a more cautious approach is warranted. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, less financial sector optimism, more shorting, profit-taking, high energy prices and global growth fears.

Today's Headlines

  • EU Stumbles as Merkel Signals Greece Debt Deal Delay. European leaders sparred with Greece over a second rescue program, clouding progress toward a permanent aid fund and tougher budget rules designed to stabilize the euro. Greece faced criticism that its economic makeover is faltering, and it fended off German-led calls for a European overseer to take command of its budget after its deficits surpassed targets for two years. “What the Greeks have to do is show they are ready to implement the package,” Dutch Prime Minister Mark Rutte told reporters as he arrived for a European Union summit in Brussels today. “We can help Greece through this difficult phase, but then Greece has to execute all agreements they made with us.” Bargaining with Greece over a debt writedown and its economic management threatened to overshadow a summit meant to point the way out of the financial crisis by speeding the setup of a full-time 500 billion-euro ($654 billion) rescue fund and signing off on a German-inspired deficit-control treaty. A start-of-year respite from market pressures continued today when Italy raised 7.5 billion euros, close to its maximum target, in preparation for its biggest redemption of 2012. At least five more countries plan bond sales this week. The euro slipped 0.9 percent to $1.3160 at 5:30 p.m. in Brussels, snapping a five-day rally.
  • Stocks in Europe Fall Most in Six Weeks; BNP Paribas Tumbles on French Tax. European stocks dropped the most in six weeks as Portuguese bonds sank amid concern a meeting of the region’s leaders will fail to draw a line under the sovereign- debt crisis. BNP Paribas SA (BNP) tumbled 7.1 percent, leading French banks lower, as President Nicolas Sarkozy said he will unilaterally impose a financial-transaction tax. Royal Philips Electronics NV (PHIA) fell 2.2 percent after reporting a larger-than-estimated loss. Hochtief AG (HOT) slid 5.8 percent after saying it will post a wider annual loss than previously anticipated. The Stoxx Europe 600 Index retreated 1.1 percent to 252.52 at the close of trading, the largest slide since Dec. 14.
  • Portugal Likely to Get Scant Relief From Greek Debt Agreement: Euro Credit. The Greek debt swap negotiations that may produce relief for Athens are fueling concerns in Lisbon where an agreement would make it more likely Portuguese investors would be next in line to accept a loss. European leaders have said a Greek accord where investors take a 50 percent writedown in the face value of their bonds is unique and won’t be applied to other nations struggling to tame rising debts. Holders of Portuguese securities are skeptical, with the yield on the nation’s 10-year bonds rising today to a euro-era record of 16.45 percent. “Portugal’s debt and lack of growth is very similar to Greece,” Yannick Naud, who manages $150 million at Glendevon King Asset Management, said in a Jan. 23 interview in London. “Its bonds are falling because it’s very obvious to everyone that if there’s a haircut for Greece, there might well be a haircut for Portugal too.”
  • Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate debt rose, according to traders of credit- default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 13.5 basis points to 618.5 basis points, according to JPMorgan Chase & Co. at 7:30 a.m. in London. An increase signals worsening perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 3.25 at 144.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 4.5 basis points to 215 and the subordinated gauge was up six at 375.
  • MF Global Said 'Never Been Stronger' a Week Before Failure. A week before MF Global Holdings Ltd. collapsed, its chief financial officer told Standard & Poor’s in an e-mail that the futures broker had “never been stronger.” S&P provided the House Financial Services Subcommittee on Oversight and Investigations with an excerpt of the e-mail from MF Global CFO Henri Steenkamp. S&P also informed the panel that Jon Corzine, then MF Global’s chief executive officer, met with its analysts on Oct. 20 to reassure them that his $6.3 billion bet on European sovereign debt was no threat to the firm, according to a Jan. 17 letter obtained by Bloomberg News.
  • Canada's Subprime Crisis Seen With U.S.-Styled Loans: Mortgages. Canadian lenders are loosening standards on mortgages that are similar to U.S. subprime loans, posing an "emerging risk" to financial institutions, according to the country's banking regulator. Banks and other lenders are becoming "increasingly liberal" with mortgages and home-equity credit lines that don't require individuals to prove their income, according to documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, "have some similarities to non-prime loans in the U.S. retail lending market," the documents show. "Non- income qualified" lending has been added to a list of issues to be considered by OSFI's "emerging-risk committee," the documents show. "It just speaks to the general easing in lending standards, which has contributed to a booming housing market," said David Madani, an economist in Toronto with Capital Economics, which estimates that Canadian housing prices may fall 25 percent over the next few years. "The problem is sort of baked in now, so I'm not sure there's a way to prevent a weakening of the housing market."
  • Corn, Soybean Futures Decline as Rain May Boost Crops in Argentina, Brazil. Corn fell for the first time in eight sessions and soybeans dropped on speculation that rain in South America will boost crop potential, reducing demand for supplies from the U.S., the world’s biggest exporter.
  • Consumer Spending in U.S. Stalls. Consumer spending stalled in December as Americans took advantage of a jump in incomes to restore depleted savings, indicating households remain focused on repairing finances. Purchases were little changed after rising 0.1 percent the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase in sales. Incomes climbed by the most in almost a year, pushing the savings rate to a four-month high.
Wall Street Journal:
  • Germany Warns Greece on Aid Funds. Germany's finance minister issued an unusually blunt warning that the euro zone might refuse to grant Greece a fresh bailout, pushing Athens into default unless it persuades Europe it can overhaul its state and economy. "Greece needs to decide," Wolfgang Sch√§uble said in an interview with The Wall Street Journal, when asked whether the euro zone would grant or withhold the second bailout package for the country since 2010, expected to be in excess of €130 billion ($172 billion).
  • CFTC to Step Up Focus on High-Frequency Trading. The Commodity Futures Trading Commission is planning to take a closer look at high-frequency trading, with an eye on getting a clearer understanding of how electronic trading affects commodity markets and participants.
  • Fed Survey Finds Banks Still Cautious to Lend. Banks in the U.S. kept credit fairly tight in the final months of 2011 even as demand for loans increased, putting a brake on the slow economic recovery. The Federal Reserve's quarterly survey showed that credit standards on commercial and industrial loans were little changed for the 56 domestic banks that were interviewed, after the banks stopped relaxing credit in the third quarter.
  • Syrain Forces Battle Ahead of U.N. Talks. Syrian forces heavily shelled the restive city of Homs on Monday and troops pushed back dissident troops from some suburbs on the outskirts of Damascus in an offensive trying to regain control of the capital's eastern doorstep, activists said. President Bashar al-Assad's regime is intensifying its assault aimed at crushing army defectors and protesters, even as the West tries to overcome Russian opposition and win a new U.N. resolution demanding a halt to Syria's crackdown on the 10-month-old uprising. Activists reported at least 28 civilians killed on Monday.
  • Why Even 20-Somethings Are Worried About Retirement.
  • Pay Up-Front Portugal Slides Towards Bond Pariah Greece.
  • Rates May Need to Rise Sooner: Philly Fed's Plosser. "If the economy evolves as I think it might, then it’s likely it might have to be sooner than that," he said of a mid-2014 increase. "I’ve said previously that I thought it possible rate hikes would have to come before mid-2013. I was unhappy with the calendar date in the statement. I’m still uphappy with the statement. I don’t think it’s the right way to convey policy." He said it is "clear" from the Fed's statement the mid-2014 date "is contingent on the evolution of the economy. It is not a commitment and shouldn’t be interpreted as a commitment. It’s a conditional statement." He acknowledged "we are punishing savers" by keeping rates at near zero. "The policy is to get people to quit saving and start spending," he said. The problem is, when they start liquidating assets "it's gonna be gone" for the next generation. He also acknowledged low interest rates are forcing some investors to take "unwise risks" in the search for yield from stocks, Plosser said.
Business Insider:
Zero Hedge:

The Detroit News:

  • Treasury Ups Auto Bailout Loss Estimate. The U.S. Treasury Department boosted its estimate of government losses in the $85 billion auto bailout by $170 million. In the government's latest report to Congress this month, the Treasury upped its estimate to $23.77 billion, up from $23.6 billion. Last fall, the government dramatically boosted its forecast of losses on the rescues of General Motors Co., Chrysler Group LLC and their finance units from $14 billion to $23.6 billion. Much of the increase in losses is due to the sharp decline of GM's stock price over the last six months. GM was trading at noon today at $24.24. It's down 35 percent over its 52-week-high of $37.23, but the Detroit automaker has rebounded from a low set last year of $19.05.
The Daily Ticker:


  • Gulf Arabs Have Plans Against Hormuz Closure - Official. Coastguards and naval forces of the Gulf Cooperation Council (GCC) group of Arab countries have contingency plans for a possible attempt by Iran to shut the Strait of Hormuz, a Kuwaiti maritime official said on Monday.
  • Oil Slips in Choppy Trade. Oil prices slipped on Monday in volatile trading a day after Iran postponed a parliamentary debate on a proposed halt to crude sales to the European Union. The dollar index .DXY strengthened and the euro fell from a six-week high against the U.S. currency as talks on a Greek debt agreement continued, keeping investors cautious about the outlook for the economy and oil demand. The possibility Iran may yet halt exports to the EU, along with data showing improved European economic sentiment and a successful bond auction in Italy, helped limit oil's losses."Oil is lower because Iran didn't cut off sales to Europe and the dollar index is stronger, and there still isn't a deal on Greece," said Phil Flynn, analyst at PFGBest Research in Chicago.Brent March crude fell 46 cents to $111 a barrel by 12:45 p.m. EST, having traded from $110.80 to $111.78. That intraday peak was in sight of front-month Brent's 200-day moving average of $111.89.U.S. March crude fell 36 cents to $99.20 a barrel, having swung from $98.50 to $100.05, seesawing either side of the front-month 50-day moving average at $99.27.
  • Rajoy Says Spain Won't Make 2012 Growth Target. Prime Minister Mariano Rajoy said on Monday Spain was not going to meet its existing growth target for 2012, but wouldn't go into detail about what that may mean for its plans to cut its budget deficit sharply.
Financial Times:
  • Portugal Yields Jump On Default Fears. Portugal’s bond yields reached new euro-era highs as many investors priced in a Lisbon default amid fears its debt holders could suffer heavy losses once a restructuring deal with Greece is agreed. At one point the yield on benchmark 10-year Portuguese debt rose as much as 204 basis points to 17.26 per cent. Portuguese credit default swaps, meanwhile, rose to record levels as the market priced in about a 70 per cent chance the country would default over the next five years.
  • Eurozone Crisis: Live Blog.


Financial Times Deutschland:

  • Kloeckner says steel demand in Europe may drop 5% or more, citing CEO Gisbert Ruehl. Insecurity in the markets is at the moment probably higher and more threatening than during 2008 with no end in sight for the debt crisis.
  • Greece should be closely monitored by the European Union if it won't manage itself, German Economy Minister Philipp Roesler said in an interview. Greece also shouldn't receive any more aid until it implements reforms, Roesler said, adding that Germany opposes adding money to the European Stability Mechanism.

Shanghai Daily:

  • New Home Sales in Shanghai Fall to Lowest in 7 Years. NEW home sales in Shanghai during the week-long Lunar New Year holiday fell to the lowest in seven years on a sluggish buying sentiment. More than 1,700 square meters of new homes, or 16 units, excluding government-funded affordable housing, were sold across the city during the holiday which ended on Saturday, the lowest since 2006 when the city's housing data were first tracked, said a report released yesterday by Shanghai Deovolente Realty Co. The sales by area fell 33.3 percent from the Lunar New Year holiday in 2011, and the unit number shed 27.9 percent.

Bear Radar

Style Underperformer:

  • Mid-Cap Value -.71%
Sector Underperformers:
  • 1) Homebuilders -2.0% 2) Hospitals -1.90% 3) Steel -1.50%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) FCN 2) RENN 3) KRE 4) RDN 5) MTG
Stocks With Most Negative News Mentions:
  • 1) SPLS 2) CF 3) CCL 4) BAC 5) BLK

Bull Radar

Style Outperformer:

  • Large-Cap Growth -.50%
Sector Outperformers:
  • 1) Airlines +.39% 2) Computer Services +.29% 3) Oil Tankers +.19%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) RENN 2) ONTY 3) AMLN 4) FTR 5) MDVN
Stocks With Most Positive News Mentions:
  • 1) NOC 2) RTN 3) PBY 4) GD 5) AMLN

Monday Watch

Weekend Headlines

  • Greek Debt Talks Risk Derailing EU Summit's Crisis-Fighting Plan. European Union leaders gather for their first summit of 2012 as a deteriorating economy and struggle to complete a Greek debt writeoff risk sidetracking efforts to stamp out the financial crisis. EU chiefs arrive in Brussels about 2 p.m. today to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year. Greece and its private creditors said Jan. 28 they expect to complete a deal in coming days after bondholders signaled they would accept European government demands for a bigger cut in their debt holdings. Efforts to hold the 17-member euro area together with bolstered fiscal rules and a stronger firewall are colliding with stalled progress in Greece, where the crisis began in 2009. To prevent a financial collapse, Greek bondholders have been pushed to cede more ground after agreeing in October to take a 50 percent cut in the face value of more than 200 billion euros ($263 billion) of debt. “The fact we’re still at the beginning of 2012 talking about Greece is a sign this problem hasn’t been dealt with,” U.K. Chancellor of the Exchequer George Osborne said at the World Economic Forum in Davos, Switzerland. The summit follows warnings at the gathering that ended yesterday in Davos that it’s time to end the region’s debt crisis and that measures aimed at simply containing the turmoil are no longer enough. The euro economy is set to contract by 0.5 percent this year, according to the median of 19 economist forecasts compiled by Bloomberg.
  • Euro-Area Debt Sales Top $29 Billion in Week as Fitch Threatens Sentiment. European nations including Italy, Belgium and Spain sell no less than 22 billion euros ($29 billion) of securities this week as credit-rating cuts risk upending optimism the region’s debt crisis is being contained. Italy auctions as much as 6 billion euros of five- and 10- year debt today, along with securities due in April 2016 and March 2021. Belgium sells as much as 3 billion euros of bills tomorrow, with Spain, Portugal, Germany and France issuing 13 different maturities in the five days.
  • Ackermann Says Greek Default Would Be 'Playing With Fire'. The economic and political consequences of Greece defaulting instead of reaching a voluntary debt-restructuring deal are being underestimated, Deutsche Bank AG Chief Executive Officer Josef Ackermann said. “Default risk is much higher than what people normally take into account,” Ackermann said today in an interview at the World Economic Forum in Davos, Switzerland. “You see already that some markets are nervous about certain countries,” he said. “That is playing with fire if you think that a default will have no impact.” As Greece's creditors continue negotiations with the country's government as well as the International Monetary Fund, European Union, and European Central Bank over the terms of a restructuring, some investors and financiers are downplaying the consequences of a default. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it would not be a “disaster,” Dow Jones reported, citing an interview with CNBC. “They are underestimating the collateral damages and they are underestimating the risk of contagion,” Ackermann, 63, said today. “If we have a default in the euro zone going forward, this will reduce somewhat the trust and confidence in the euro system and so, in that sense, we should do everything also from a historic and political perspective to prevent a default.”
  • Greek Debt Deal May Mean Little Relief for Portugal: Euro Credit. The Greek debt swap negotiations that may produce relief for Athens are fueling concerns in Lisbon where an agreement would make it more likely Portuguese investors would be next in line to accept a loss. European leaders have said a Greek accord where investors take a 50% writedown in the face value of their bonds is unique and won't be applied to other nations struggling to tame rising debts. Holders of Portuguese securities are skeptical, with the yield on the nation's 10-year bonds rising 42 basis points to a euro-era record of 15.22% on Jan. 27. "Portugal's debt and lack of growth is very similar to Greece," Yannick Naud, who manages $150 million at Glendevon King Asset Management, said in an interview. "Its bonds are falling because it's very obvious to everyone that if there's a haircut for Greece, there might well be a haircut for Portugal too."
  • Merkel Stopped by Kauder on ESM, EFSF Merger Plan, BamS Says. Volker Kauder, the floor leader for German Chancellor Angela Merkel’s Christian Democrats, blocked a plan to put unused funds from the euro region’s financial backstop into its permanent successor, Bild am Sonntag reported. Merkel wanted to endorse combining the lending power of the European Financial Stability Facility and the 500 billion-euro ($659 billion) European Stability Mechanism, the euro region’s future permanent financial backstop. Christian Democrat members of parliament opposed the move because Germany then would be liable for more than the 211 billon euros originally approved, prompting Merkel to drop the plan, BamS said, citing parliament members it didn’t name.
  • Issing Doesn’t Rule Out Euro-Zone Exits, Neue Zuercher Reports. Otmar Issing, the former chief economist of the European Central Bank, said he wouldn’t rule out exits from the euro area, Neue Zuercher Zeitung reported, citing an interview. “The Greek case is obvious,” Issing told the newspaper. He added that the risk of contagion has fallen because countries like Ireland and Spain escaped “the line of fire” because of reforms. For the highly-indebted nations there is “no alternative” to fiscal consolidation, he said, Neue Zuercher reported.
  • German Lawmakers Reject Increasing Aid for Greece, Spiegel Says. Lawmakers from German Chancellor Angela Merkel’scoalition rejected increasing aid for Greece, Der Spiegel said, citing members of the parliament in Berlin. There can be no further aid if Greece doesn’t implement the agreed adjustment programs, the magazine said, citing Horst Seehofer, chairman of the Christian Social Union, the Bavarian sister party of Merkel’s Christian Democratic Union. Greece must show evidence that it’s serious about implementing structural reforms, the magazine cited Rainer Bruederle, head of the Free Democratic Party’s group in parliament, as saying. All Greek parties must show the desire for fundamental change because there is increasing “annoyance” in Berlin, Der Spiegel said, citing CDU lawmaker Gunther Krichbaum, head of the European Affairs committee.
  • Asian, Middle Eastern Holders Cut EFSF Bond Purchases, FT Says. Asian and Middle Eastern money managers have reduced purchases of new European Financial Stability Fund bonds at a faster pace than other investors, the Financial Times reported, citing data from CreditSights Inc. The proportion of the bonds bought by investors including central banks and sovereign wealth funds has fallen to 17 percent this month from 54 percent in June, the FT said. Asian and Middle Eastern investors purchased 12 percent of the bonds compared with 50 percent in June, according to the report.
  • France May Raise EU1 Bln From Tax on Stock Trades, Figaro Says. France may raise 1 billion euros ($1.3 billion) annually from a transaction tax on stock trades, Le Figaro reported, without saying where it got the information. The 0.1 percent tax would also cover the most standardized derivatives products, while bonds and transactions on capital instruments would not be taxed, Le Figaro said. The tax project will be presented at a Feb. 8 French government cabinet meeting, according to the report.
  • China Signals Limited Loosening as PBOC Bucks Forecast. China (CNGDPYOY) signaled caution toward more monetary loosening by holding off on a reduction in bank reserve requirements that some economists had predicted would come before a week-long holiday ending Jan. 28. “The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire.
  • China's Stocks Decline After Weeklong Holiday. China’s stocks fell after the government signaled caution toward further easing of monetary policy by holding off on a cut in bank reserve requirements and the U.S. economy expanded less than forecast. China Vanke Co. (000002) and Poly Real Estate Group Co., the nation’s biggest developers, slid more than 2 percent after the Beijing Morning Post said home sales in the capital dropped during the weeklong Chinese New Year holiday. Liquor maker Kweichow Moutai Co. (600519) paced declines for consumer stocks after retail sales growth slowed last week. Zijin Mining Group Co. led gains for gold producers after bullion prices jumped. “There was no reserve-ratio cut during the holiday so liquidity will still be tight,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “It looks like the government isn’t in a hurry to release too much liquidity into the market as opposed to the market expectation of an immediate and aggressive relaxation.”
  • Simpson Says 'Terrified' Obama Walked Away From Deficit Issue. President Barack Obama “walked away” from his bipartisan U.S. deficit-cutting commission’s plan “because he knew he’d be torn to bits,” said former Republican Senator Alan Simpson, who was co-chairman of the panel. Obama is “terrified” of the deficit issue, Simpson said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “He didn’t deal with it” in his annual State of the Union address to Congress on Jan. 24.
  • SEC Probes Deutsche Bank CDO Deal With Paulson, Spiegel Says. The U.S. Securities and Exchange Commission is investigating a collateralized debt obligation transaction in which Deutsche Bank AG (DBK) allowed U.S. hedge fund Paulson & Co. to select mortgage-backed securities, Der Spiegel reported. For a CDO called “START,” the bank allowed Paulson to bet against the securities without telling other investors, the German magazine said on its website. Goldman Sachs settled a suit by the SEC for $500 million over a similar transaction, according to Der Spiegel. Like other lenders, Deutsche Bank is faced with lawsuits brought forward by retail and institutional clients who have lost money in the financial crisis, Deutsche Bank spokesman Frank Hartman said when contacted by Bloomberg News. The lender look into the claims carefully and, if they prove wrong, will defend itself vigorously, he said.
  • Oil Drops a Second Day Before European Leaders Meet for Debt Discussions. Oil declined for a second day in New York before a meeting of European Union leaders to discuss the region’s debt crisis, which has slowed the economy and threatened to curb fuel consumption.
  • ABB Nears Deal for Thomas & Betts for About $4B. ABB Ltd. (ABBN) is near an agreement to buy Thomas & Betts Corp., a maker of electrical connectors, for about $4 billion in cash, a person with knowledge of the plan said. ABB, based in Zurich and the world’s largest provider of power-transmission gear, may announce a deal as soon as today, said the person, who spoke on condition of anonymity because the negotiations are private. The talks for Thomas & Betts, whose market value was $3.02 billion based on its Jan. 27 closing price of $57.95 a share, may still break down.
  • StanChart's Bindra Sees Hong Kong Hyperinflation Risk. The U.S. Federal Reserve’s pledge to keep interest rates low through at least late 2014 creates a risk of hyperinflation in Hong Kong, said Jaspal Bindra, Standard Chartered Plc (STAN)’s chief executive officer for Asia. A currency peg to the dollar means the city won’t be able to raise benchmark borrowing costs as China’s expansion fuels growth and price gains, Bindra told journalists on Jan. 27 at the World Economic Forum in Davos, Switzerland. “It will have a very profound impact in Hong Kong,” he said. “If you have near-zero interest rates when their inflation is at over 6 or 7 percent given the China effect, and their growth is, also thanks to China, at 6 or 7 percent, you’re looking for hyperinflation.”
  • If Carried Interest Irks You, You Don't Get It: William Dantzler. Do we really want a tax law in which only people who already have money can earn a capital gain? And, if earning a capital gain requires an investment, then how much? Does it have to be a big investment? Can it be borrowed from the other partners? Isn’t a carried interest in effect just a loan from the moneyed partners? These are difficult questions that affect the entire structure of capital-gains taxation -- not just carried interest. It would be very hard to draw a fair line between the type of private-equity investment that is deserving of capital gain treatment and that which is not. It is perhaps not an accident that the carried interest discussion is taking place in the political arena -- over Mr. Romney’s tax returns -- rather than the worlds of tax law or tax policy, and that the advocates of taxing carried interest at higher rates are not tax experts who understand the complexity of the issue and the difficulty of drawing fair lines.
  • Goldman Sachs(GS) Among Banks Fighting to Exempt Half of Swaps Books. More than half of the derivatives- trading business of Goldman Sachs Group Inc. (GS), Morgan Stanley and three other large banks could fall largely outside the Dodd- Frank Act if they succeed in lobbying regulators to exempt their overseas operations, government records show. The banks have met with regulators, testified to Congress and filed dozens of letters contending that they will suffer a competitive disadvantage if the regulations apply to their foreign arms. Banking lobbyists have been gaining traction with their argument that a combination of U.S. supervision of their holding companies and foreign supervision of their operations abroad is sufficient to oversee risk to the financial system. While the banks haven’t publicized how much of their swaps business is overseas, they file quarterly statements to the Federal Reserve. A Bloomberg News analysis of the filings shows that Goldman Sachs had 62 percent of its $134 billion in fair- value derivatives assets and liabilities in non-U.S. branches or subsidiaries for international banking as of Sept. 30, while 77 percent of Morgan Stanley (MS)’s $101 billion was in non-U.S. operations. If overseas operations aren’t subject to U.S. rules or equivalent regulation by other nations, it could impede the goal of preventing another credit crisis, Darrell Duffie, professor at Stanford University’s Graduate School of Business, said in a telephone interview. “Not only is that neglectful from a viewpoint of systemic risk as it sits today, but it’s also an incitement to move the risk abroad,” Duffie said.

Wall Street Journal:
  • Japanese Debt Concerns Rise. Default-Insurance Costs Climb as Raters Weigh Downgrades; 'Absurdly Unsustainable'. Jitters from Europe's sovereign-debt crisis are now touching Japan, a country with a long-calm bond market despite fiscal deficits far larger than those of Greece or Italy. In recent weeks, the cost of insuring against default on Japanese government bonds—a measure of perceived credit risk—has increased sharply, nearing the historic peak at the height of the Greek debt crisis in October. The price for default insurance, through derivatives known as credit-default swaps, exceeds levels seen last March, immediately after natural disasters and a nuclear crisis darkened Japan's outlook.
  • Law Firms Keep Squeezing Associates. Law firms are finally starting to recover from the recession, but they aren't taking their young lawyers along for the ride.
  • Citi(C) Chairman Parsons Considers a Departure. Richard D. Parsons, who as chairman of Citigroup Inc. helped steer the bank through its near-death experience in the financial crisis, is considering stepping down after three years in the post, said people familiar with the situation.
  • Money From MF Global Feared Gone. Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation. As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, said a person close to the investigation.
  • The Solyndra Rule. Another green subsidy favorite goes belly up. President Obama keeps pushing the (Warren) Buffett rule that nobody making more than $1 million a year should pay less than 30% in taxes. He'd do better by the economy if he adopted a Solyndra Rule, in which no company touting unproven and expensive technology should receive millions in taxpayer subsidies.
Business Insider:
Zero Hedge:


  • India Won't Cut Iranian Oil Imports: Finance Minister. India, the world's fourth-largest oil consumer, will not take steps to cut petroleum imports from Iran despite U.S. and European sanctions against Tehran, its finance minister said on Sunday during a visit to Chicago. The United States wants buyers in Asia, Iran's biggest oil market, to cut imports to put further pressure on Tehran to rein in its nuclear ambitions. Washington suspects Iran of trying to make nuclear weapons, but Tehran says its nuclear program is for peaceful means. India, which imports 12 percent of its oil from the Islamic Republic, cannot do without Iranian oil, the official said. "It is not possible for India to take any decision to reduce the imports from Iran drastically, because among the countries which can provide the requirement of the emerging economies, Iran is an important country amongst them," India Finance Minister Pranab Mukherjee told reporters in Chicago at the end of a two-day visit aimed at wooing U.S. investment.
  • With $100 a Barrel Oil, Why Isn't Green Tech Better? The demand for energy is expected to double in the next 40 years globally, as populations grow and access to electricity increases, yet a large-scale, safe alternative to fossil fuels has yet to be built.
  • China's Wen Says Government Debt Risk 'Controllable'. China's Premier Wen Jiabao said the nation's government debt is at an "overall safe and controllable" level, that funding for key projects would be ensured and that applying the brakes to the problem would be done in a way to avoid systemic risks. Investors have been worried by the scale of the debts built up by China's local governments, which some fear could threaten the stability of the banking system.
LA Times:
  • Occupy Oakland Arrests Reach 400; City Hall Vandalized. Officials surveyed damage Sunday from a volatile Occupy protest that resulted in hundreds of arrests the day before and left the historic City Hall vandalized after demonstrators broke into the building, smashed display cases, cut electrical wires and burned an American flag. Police placed the number of arrests at about 400 from Saturday's daylong protest — the most contentious since authorities dismantled the Occupy Oakland encampment late last year. Mayor Jean Quan condemned the local movement's tactics as "a constant provocation of the police with a lot of violence toward them" and said the demonstrations were draining scarce resources from an already strapped city. Damage to the City Hall plaza alone has cost $2 million since October, she said, about as much as police overtime and mutual aid. Oakland has logged five homicides since Friday, and Police Chief Howard Jordan said the law enforcement "personnel and resources dedicated to Occupy reduce our ability to focus on public safety priorities."
  • Syrian Army Cracks Down on Protests in Damascus Suburbs. Syrian tanks and troops moved Sunday to crush resistance in the rebellious suburbs of Damascus, opposition groups reported, bringing the bloody battle that has ravaged the nation for months to the doorsteps of the nation's capital. The fierce fighting reported outside Damascus was the latest sign that Syria's armed insurgency — long concentrated in provincial hotbeds of revolt like Homs, Hama and Dara — has now reached the edge of the city from which the Assad family has ruled Syria in autocratic fashion for more than 40 years. That reign now appears threatened as never before, raising the prospect of a revamped geopolitical alignment in the heart of the volatile Middle East. More than 250 people have been killed in clashes nationwide since Thursday, according to the Local Coordination Committees, an opposition coalition. The group reported at least 64 deaths on Sunday alone.
NY Times:
  • U.S. Banks Tally Their Exposure to Europe's Debt Maelstrom. After a hurricane, homeowners check nervously to see if their insurance will cover all of their damages. With the European financial crisis still threatening a trail of defaults, United States banks are betting that their insurance is going to pay out. Five large American banks, including JPMorgan Chase and Goldman Sachs, have more than $80 billion of exposure to Italy, Spain, Portugal, Ireland and Greece, the most economically stressed nations in the euro currency zone, according to a New York Times analysis of the banks’ financial disclosures.
USA Today:
  • Apple(AAPL) Makes Move Into Offices. Microsoft's(MSFT) corporate Windows business is losing ground to Apple. Apple is hiring sales executives across the U.S. to get more of its products into Fortune 1000 companies.
  • Iran Vows to Stop "some" Oil Sales as Inspectors Visit. Iran sent conflicting signals in a dispute with the West over its nuclear ambitions, vowing to stop oil exports soon to "some" countries but postponing a parliamentary debate on a proposed halt to crude sales to the European Union. The Islamic Republic declared itself optimistic about a visit by U.N. nuclear experts that began on Sunday but also warned the inspectors to be "professional" or see Tehran reducing cooperation with the world body on atomic matters.
Financial Times:
  • Successful Short Selling - An Effective But Rare Skill. Returns from short bias funds over the past few years do not make particularly happy reading as shorting only works in particularly dire years. In 2008, for instance, the strategy returned 28 per cent to investors, according to HFR. But it lost investors 24 per cent in 2009 and 18 per cent in 2010, compared with 10 per cent gains for the average hedge fund investor. It is little wonder that, despite the common perception that hedge funds are obsessed with shorting, in reality there are few specialists on the short side.
  • Deutsche Bank Targets Problem Assets. Deutsche Bank is preparing to launch a fund to snap up investors’ illiquid or damaged holdings in hedge funds that have failed to recover since the financial crisis. The bank estimates that, three years after the collapse of Lehman Brothers, investors are sitting on between $80bn and $100bn of hard-to-sell hedge fund assets that could prove lucrative in the coming years.
  • Western Industrials Feel A Chinese Burn. Western industrial companies have seen a slowdown in some markets in China as efforts to cool the world’s second largest economy have hit demand for capital goods and products linked to the construction industry. China was until recently a source of rapid growth for US and European manufacturers, helping to offset weak sales in developed countries.
Le Monde:
  • French President Nicolas Sarkozy plans to announce tomorrow the value-added tax will be increased by 1.6 percentage points to 21.2%.
  • China has no plans to invest local pensions in the market "temporarily," citing Yin Chengji, spokesman of the Ministry of Human Resources and Social Security.
Caixin Online:
  • China may impose a 10% tax on profits from stock investment by qualified foreign institutional investors for the first time since the funds were set up nine years ago.
Beijing Morning Post:
  • Home sales in China's capital Beijing fell to zero during the week-long Lunar New Year holiday, the first time in three years that no sales were recorded for a week, citing data from the local government. Average home prices dropped 23.6% from a year earlier as of Jan. 27.
Tehran Times:
  • Iran said it will install its first 20% nuclear fuel plates at the Tehran Research Reactor within a month, citing Foreign Minister Ali Akbar Salehi.
Weekend Recommendations
  • Made positive comments on (YUM), (COH) and (CLF).
  • Made negative comments on (JAH) and (SHLD).
Night Trading
  • Asian indices are -1.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 183.50 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 145.75 unch.
  • FTSE-100 futures -.28%.
  • S&P 500 futures -.50%.
  • NASDAQ 100 futures -.50%.
Morning Preview Links

Earnings of Note
  • (WEN)/.04
  • (TNB)/.90
  • (WWW)/.45
  • (GCI)/.68
  • (MCK)/1.38
  • (GGG)/.51
  • (PCL)/.39
  • (SLG)/.01
  • (HOLX)/.32
Economic Releases
8:30 am EST
  • Personal Income for December is estimated to rise +.4% versus a +.1% gain in November.
  • Personal Spending for December is estimated to rise +.1% versus a +.1% gain in November.
  • The PCE Core for December is estimated to rise +.1% versus a +.1% gain in November.

10:30 am EST

  • Dallas Fed Manufacturing Activity for January is estimated to rise to .5 versus a reading of -3.0 in December.
Upcoming Splits
  • (CMN) 3-for-2
  • (TJX) 2-for-1
Other Potential Market Movers
  • None of note
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.