Market Update – The SP500 has been down now for 9 of the last 10 sessions “buyers are no where to be seen” $SPY

• Market Update – equities extended their decline this week, w/the sp500 dropping ~5% (on back of last week’s ~3.6% decline), although late on Thurs and into Fri, it appeared like the worst of the selling pressure had been exhausted. 
• The SP500 has been down now for 9 of the last 10 sessions (and 4 of those 9 days have been declines of more than 1%, inc. the 3.1% drubbing experienced on Tues June 29).  The big underlying catalyst behind the weakness has been a theme present in the marketplace for a couple weeks now but gaining more adherents every day – a concern that economic growth is quickly slowing and potentially heading for a “double dip”. 
• US investors have endured a slew of economic readings coming in below consensus really since the May jobs report back on June 4 (when the private sector adds of just 41K badly missed St expectations of +180K; that 41K has subsequently been revised lower to +33K). 

Moodys warned of a possible downgrade to the country's maximum credit rating, highlighting the rapid deterioration of Spain's economy and public finances $EWP

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MADRID (Dow Jones)--Moody's Investor Service, the last major credit ratings agency to rate Spain Aaa, Wednesday warned of a possible downgrade to the country's maximum credit rating, highlighting the rapid deterioration of Spain's economy and public finances. The move follows Fitch Ratings' downgrade of Spain from the coveted top rating late last month. Standard & Poor's Ratings Service cut Spain to AA, two notches below the top rating, in April. Spain is grappling with the collapse of a decade-long housing boom that is weighing on the country's banks, has sent unemployment soaring to over 20% and opened up a double-digit budget deficit. Following the meltdown of Greece's public finances, jittery investors have become increasingly concerned about the problems in Spain, the euro zone's fourth-largest economy, prompting a widespread selloff of euro-zone

Todays TOP Stories 04/12/10

Todays TOP Stories by theback9 04/12/10

• Greece - the big story over the weekend being the announcement by Eurozone governments of a loan package for Greece worth at least EU30B (US$41B). From JPM’s D. Mackie – “In our view, the support mechanism should work in the sense of limiting both near term liquidity stress on Greece and contagion in the rest of the region. But, the medium term issue of debt sustainability remains.” JPMorgan’s J. Normand comments re the loan that “These terms are good but not great.”
• Greece - Luxembourg PM Junker told reporters on Sunday that “this is a step of clarification that markets are waiting for – it shows there is money behind this”. A “loaded gun” to ward of speculators is now “on the table” according to Greece’s PM. The agreement came about after Germany dropped its opposition to subsidies for Greece lending. Greece has not asked for aid from its euro zone peers, a German government spokesman said on Monday, adding that a summit of European leaders would be needed to activate a financial rescue mechanism agreed for Athens; "Just because I have a fire extinguisher on the wall doesn't mean I'm going to use it," (an EU spokesman denied the German comment about a summit being required….. "No. We do not have to organise a big summit here in Brussels. As you saw yesterday, the euro group can activate itself in a very quick, effective ... way.". Bloomberg/Reuters
• Spain - Spain’s PM told the FT this weekend that the country will implement its economic austerity plan to cut its budget deficit “whatever the cost”, and will introduce even harsher measures if necessary.
• Poland - Polish president Lech Kaczynski and other high ranking officials from the country were killed in a plane crash (the president of the National Bank of Poland, the army chief of staff and the Deputy Foreign were also on board the plane – WSJ).
• China - A few China datapoints out overnight inc. 1) March Trade balance came in as a deficit as was expected but the magnitude was greater than the St. was looking for (-$7.24B vs. St. -$0.39B), 2) Chinese banks extended a less-than- estimated 510.7 billion yuan ($74.8 billion) of new loans in March, and 3) China’s FX reserves rose at a slower pace in Q1 vs. Q4 (+$47.9B vs. +$127B). Re the Yuan and a potential devaluation, Chinese officials pointed to the March deficit as evidence to refute claims that the yuan level was distorting economic relationships and PBOC governor Z. Xiaochun said he doesn’t know where the NYT received its story about an imminent revaluation last week. Property Developer shares were weak in Asia after a top China bank regulator said the country's banks must do more to rein in risky lending to land developers (Reuters) with some banks in Beijing “voluntarily and prudently” raising down-payment requirements for second mortgages to 60% of a property’s value.

Developed economies are yet to start the process of reducing non-financial leverage:

As we noted Wednesday (It’s Simple: Too Much Debt), borrowers have three options:

1. Pay down the debt. This means increasing saving rates (typically by spending cuts).

2. Swap the debt. Find someone else to bear (or share) the burden.

3. Default on the debt. This could be overt or covert (some form of currency debauchment).

The focus now is on public sector debt: Public sector debt is rising (although, on average, below the levels seen after World War

2) and budget deficits are very large.
It may be unusually difficult to restore fiscal policy to sustainable levels:

First, the private sector is also highly indebted in many economies: This means that aggregate nonfinancial sector leverage is very high. We don’t know of any examples of a country reducing leverage from a starting point as high as it is now in many developed economies, without serious crisis, default or inflation.

Second, as far as we can tell, it is unusual for very high leverage to be as widespread as it is now: The highly leveraged economies include many major western
economies. The closest precedent was after World War

2, but aggregate leverage then was lower than now. Prevalence matters: To increase national saving, an individual country can depress domestic (and import) demand and depreciate the currency to boost exports. But with so many major economies affected, simultaneous currency depreciation is difficult. Moreover, if countries synchronize their domestic weaknessm the result could be global double-dip.

In some cases depreciation may not even be an option: The countries on the European periphery are effectively only semi-sovereign states. They don’t control their own currency or their own interest rates, and they don’t have recourse to a printing press.

Full report ======= here

February 18, 2010 Market Commentary By Art Cashin

Cashin’s Comments
AN ENCORE PRESENTATION

On this day (approximately) in 791 A.D. (approximately), a highly placed Arabian named Scheherazade (approximately) found herself in a precarious position (certainly).
It all involved the ruler of Iraq and the need for delay. Scheherazade needed to buy time, to delay a deadline. To buy that time as Iraqis sometimes do she made up some fabulous stories. The first of these concerned an Iraqi who left Basra and in seven
journeys became involved with pirates, shipwrecks, bottled genies, flying carpets and terrorism. This guy's name was Sinbad and amazingly even he didn't trust the ruler of
Baghdad. By making up stories, Scheherazade was able to hold off her adversaries
and re-solidify her position.

To celebrate drop by the "Magic Lamp Lounge" and tell Aladdin, the bartender, that -
"That was then and this is now." Telling tales may not delay history from happening.
Currency Concerns Turn Comparative – The dollar (DXY) rallied and the Euro fell in
Wednesday’s trading. So, you might expect that stocks, oil and gold got pummeled.
Well, that’s not what happened.

Recalling the late Gerald Loeb’s caveat (whenever you find the key to the market –
they change the locks), you might think the dollar dominance has faded. That might
be a hasty judgment. It may be that the markets are looking less at the direction of
the greenback and more at comparative levels.

While it was true that the dollar (DXY) rallied sharply Wednesday, it failed to get back
to the high levels of Friday when stocks, oil and gold got slaughtered.
Traders had noted some spread, or minor disconnect, between the dollar movement
and its impact on other assets over the last two weeks. At first they thought it might
be about the level of velocity in the dollar move. That turned out to be a bit of a force
fit. Yesterday, it looked like the dollar influence may have depended on absolute
levels.

In Friday’s dollar spike, the DXY rose to 80.748. Yesterday’s dollar rebound got the
DXY back to 80.528. The failure to punch through Friday’s high appeared to mute
the influence of the dollar rally on other assets.
The net result of the minor dollar disconnect was a day of mild moves in extremely
dull trading.

Cocktail Napkin Charting – In Wednesday’s Comments, we said the napkins
suggested resistance in the S&P at 1103/1108. Yesterday, the intra-day high was
1101. To us that underscores the potential struggle the bulls may face as we churn
into the very heavy resistance that stands between 1100 and 1130. For today, the
napkins suggest support at 1087/1092 with backup at 1074/1077. The resistance
levels look to stay at 1103/1108 with backup at 1113/1118.

How Real Is The Greek “Thirty Day Window” – European authorities tried to buy
some time in the Greek Crisis by announcing that Greece would have thirty days to
develop a workable plan to address its problems. That window is based to some
degree on the fact that the visible trigger of an implosion would be the Greek debt
rollover that is due at the end of those thirty days.

Here’s a take from Bloomberg:
Feb. 18 (Bloomberg) -- Credit-default swaps on sovereign debt rose on investor concern that Greece may be
unable to borrow unless it gets a pledge of financial support from the European Union.
Greece needs to raise 53 billion euros ($72 billion) this year and faces about 16 billion euros of bond
redemptions by May as it struggles to narrow a budget deficit that’s more than four times the EU limit. A political
ally of German Chancellor Angela Merkel said yesterday that “not a single euro” should go to help Greece.
“It feels a bit like we are in the Twilight Zone,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in
London, wrote in a note to investors. “We are left with a stand-off that probably has to be resolved before
Greece next comes to the market.”
The article then goes on to note the pressure on rates caused by the emerging crisis.
The yield on Greek two-year notes has remained above 5 percent, the highest in the euro zone, even after
officials urged the nation this week to reduce its deficit. The premium investors demand to hold the notes
instead of benchmark German securities has held above 4 percentage points, the most since the Mediterranean
nation joined the euro and more than 10 times its 35 basis point average the past decade.
Greek Bond Sale
Greece is likely to sell 10-year bonds by March, Spyros Papanicolaou, the head of the country’s debt agency,
said Feb. 2. The yield on the nation’s outstanding 10-year note increased 12 basis points to 6.5 percent as of
9:51 a.m. in London, after climbing to 6.55 percent, the most since Feb. 9. The 6 percent security due July 2019
fell 0.83, or 8.30 euros per 1,000 euro face amount, to 96.49.
So, hoping that the crisis would only turn critical when Greece tried to come to market in March, the authorities opted for
the thirty day window.
The window, however, is vulnerable to things other than refunding.
Social unrest and backlash seem to be growing within Greece to any extensive austerity moves. Additionally, Greece, as a
sovereign, has become disenfranchised. It will not be allowed to vote in any EMU councils until it complies with the
financial guidelines of the Union.
As the clock ticks, we expect the situation to deteriorate. And, if the European crisis intensifies, it may spread to Great
Britain and then, perhaps to the U.S. This could lead to round two in the financial crisis.

Consensus – They’ll still keep one eye on the dollar (watch combined action of oil, gold and stocks to gauge currency
impact). We’ll see how the bulls handle the proximate resistance. Stay very nimble.
Trivia Corner
Errata – Several readers were kind enough to point out that we puppied up to the Smarty Pants Division too easily and
erroneously. The SPD contended that I should have made it four in a row due to George Washington. The kind readers
pointed out that Washington was succeeded by a one-term John Adams. So take that Smarty Pants Guys.
Answer - If today is Tuesday, what is the day after the day before the day before tomorrow? Answer = Tuesday.

Today’s Question - Vanna say "Oh!" - While "E" is everywhere, the letter "O" can be prevalent. For example, Door to Door
and Voodoo Doll are two common phrases of 10 letters having only "o" for a vowel. Can you think of a 4 word phrase (15
letters) that has only "o's" and means thorough or thoroughly?

here

2.18.10 Today’s Top Stories & Catalysts

Today’s Top Stories & Catalysts

· Focus for the most part remains on Europe with little out of Asia (BoJ decision pretty
much as expected and HK’s unemployment rate was unchanged) as China remaining closed.
On the Greek front, no major developments to speak of overnight (to watch coming up
though: the FT is reporting that Greece may test the waters next week w/a bond offering and
the country is expected to deliver more information by Fri 2/19 on its debt swap deals).
There were a handful of earnings out in Europe - Daimler is prob. the standout, w/the
stock off ~7% after reporting disappointing numbers and proposing a dividend cut. SocGen is
down 5% post its earnings (first disappointing European financial report this week after very
strong Barclays and ING #s) although other European financials aren't really getting hit in
sympathy. In London, BT is the weakest stock in the FTSE following a ratings downgrade
from S&P (there are continued worries about the co's pension exposure). On the eco front,
the UK posted a budget deficit for January vs. expectations for a surplus, putting UK
sovereign debt under some pressure (FT).

· tech update from Wed night - big night of earnings - on the whole numbers/trends/mgmt
commentary all remain positive, although inline w/what we heard from companies back in Jul
and also inline w/CSCO's Chambers a couple weeks back. Trends were robust in the CQ4,
trends remained strong in Jan, the CQ1 is shaping up to be better-than-seasonal for many endmarkets,
and mgmt tone remains sanguine on the outlook. The next big catalyst for tech will
be the sell-side conference season and the mid-Q updates - Goldman has a conf next week
and Morgan Stanley the week after - these forums will give companies a chance to update on
the status of Q1 (i.e. are things still pacing better-than-seasonal; how is the outlook for June
shaping up; etc). Also - we will start getting formal mid-Q updates in early Mar. Some
tidbits from Wed night: 1) HPQ tone remains positive on demand; PCs prob. showed biggest
upside (revs much better than St), which isn't surprising given what others have said/reported
(MSFT, INTC, etc); HPQ mgmt said it was component constrained (similar to what others,
inc. CSCO, have said); 2) AMAT beat and raised; tone was positive; one analyst on the call
noted that backing into CH2:10 guidance based on mgmt's color implies a down back-half (if
I take the 25% revenue growth you gave in the April quarter, 100% year on year growth, I
think you are actually talking about a 50% revenue decline from the April quarter level into
July and October"); that said AMAT was sanguine on the outlook looking into ’11; 3) NVDA
said it remained capacity constrained throughout the Q and will remain so into the Apr-end Q
(NVDA said this cost them a couple hundred million in revs in the Q and that they would
have guided for higher Apr revs). Big to watch tonight in techland - DELL and IM earnings.

· Gold sales - IMF to Begin On-Market Sales of Gold – hit after the US close on Wed – IMF
said Wed night it will soon kick off the second phase of its gold sales process. The first
phase was set aside exclusively for off-market sales to official holders. The total amount
remaining to be sold is 191.3 metric tons. In accordance with the priority of avoiding
disruption of the gold market, the on-market sales will be conducted in a phased manner over
time.

· China & US tensions growing on economic front - US officials increasingly view the
Chinese currency’s artificially low peg as a threat to worldwide economic stability; the US
plans to press Chinese officials in the coming months to take action and strengthen the yuan.
In addition, US multinational corporations are becoming increasingly vocal about what they
view as anti-competitive practices on the part of the Chinese – WSJ

· Muni market – cities weigh Chapt 9 filings – the WSJ says municipalities around the
country are considering whether to file for Chpt 9 bankruptcy protection; also on the muni
front: States see ~$1T benefits “sinkhole” (there is a massive gap between what states have
promised in pensions, health care, and other benefits, and the available resources)
· Retail earnings season kicks off – WMT earnings due to hit @ 7amET this morning; JCP
comes Fri morning.

· US bank lending falls at fastest rate in history – bank lending in the US has contracted so far in ’10 at the fastest rate in history, raising worries that the Fed is withdrawing its
emergency stimulus measures too early. The M3 broad money supply has been contracting at
a rate of 5.6pc over the last three months. This signals future deflation. London Telegraph.

· Earnings season recap – from JPMorgan’s E Beinstein - Roughly 75% of the non-financial companies in our High Grade bond index have filed their 4Q09 reports. This preliminary data suggests credit metrics continue to improve, but the complexion of the improvement has changed. Recall, trends in 3Q09 credit metrics were positive across almost all sectors. These trends continue in 4Q09, but with a different tone. While companies continue to accumulate cash, the pace is slower. With cost cutting largely finished, profit margins have ticked down as companies must spend more to grow. While leverage has likely peaked earlier in 2009, its reduction will likely be gradual.

US Budget Deficits: Slightly Larger, Still Unsustainable [Goldman Sachs Research]

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We now expect the US budget deficit to rise to $1.64 trillion (11.2% of GDP) in fiscal year (FY) 2010 and to total $10.8 trillion (trn) over the next ten years. This profile is modestly above our early October forecast and well above the administration’s figures.

Even so, near-term risks lie to the side of a bigger deficit. Tax receipts have started the year in a deep hole and could continue to fall short. And if the economy struggles as the current dose of fiscal stimulus wears off, as we expect, then policymakers are apt to adopt more stimulus than we have assumed.

While such a response would be quite sensible at this point in the cycle, restraint must be the order of the day as soon as the private sector is strong enough to drive growth on its own, as the long-term federal fiscal trend is unsustainable. By FY 2020, we expect the debt/GDP ratio to approach 90%, from 53% last September.

The magnitude of this imbalance is indicated by our profile for the primary budget deficit, which excludes net interest and never falls below 2% of GDP. Achieving a primary balance, which in most circumstances would lead to stability in the debt-to-GDP ratio, would require budget cuts of nearly $300bn per year in current dollars. Fortunately, the Treasury’s current program of debt issuance is more than sufficient to finance the deficits we envision over the next five years.

In a week of mostly stronger-than-expected data, the standout was the 0.3-point drop in the unemployment rate in January, to 9.7%. Although this came in the face of yet another drop in nonfarm payrolls and still-sticky jobless claims, we have adjusted our path for the unemployment down and now see a peak of 10½% in early 2011, against 10¾% previously. However, we continue to expect no interest-rate hikes from the Fed in 2010 and, more likely than not, in 2011 as well.

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