January 10, 2011

Equity and bond markets are both weak this morning as Euorpean CDO prices rose to record levels as Euroland prepares to borrow $43 billion this week. Asian and European markets were/are both weak last night. Portugal, Spain and Italy are holding their first bond auctions of the year this week. The Euro continues to soften, falling to 1.2929, below its beginning of the year value of 1.3361. Emerging markets continued their weakness on inflation and corresponding rate hike concerns.

Brazilian Finance Minister Guido Mantega said last night that “this is a currency war that is turning into a trade war”, referring to currency manipulation by the US and China. He said that Brazil is preparing to impose controls to restrict capital inflow and slow down appreciation in the real. He is recommending that the WTO designate currency manipulation as an illegal export subsidy.

The Massachusetts Supreme Court ruled that two foreclosures by US Bancorp and Wells were invalid due to paperwork issues. The ruling put pressure on bank stocks Friday.

Oil futures are surging after BP had to close the Trans-Alaska Pipeline yesterday due to a leak. Over 15% of US oil comes from this pipeline. Gasoline prices across the country have jumped $.09 over the past week, and in Southern California a gallon of regular unleaded sells for $3.39.

Goldman Sachs is already facing scrutiny from the SEC on their marketing of the FaceBook deal. Now they are facing public scrutiny as it comes to light that one of their top fund managers refused to participate in the deal because he felt it wasn’t “in the best interest of his clients.”

Duke Energy agreed to buy Progress Energy for $13.7 billion, creating the largest US utility. Playboy is getting a bump this morning as Hugh Heffner has announced plans to take the company private.

Investors were disappointed last week when Verizon didn’t make an announcement about carrying the iPhone at CES. They have scheduled a conference call for tomorrow, and speculation is that this is for the much anticipated iPhone announcement.

Copper fell for the 5th straight day as lower Chinese imports soften the demand outlook.

Another indictment of Wall Street research comes from Bloomberg this morning as they have analyzed S&P 500 stocks and the relationship of analyst ratings and performance. Since the March 2009 market bottom, stocks that the analysts “loved” rose 73% on average, while those with the fewest buy recommendations rose 165%. Banks are now favoring retailers, restaurant, and technology stocks-those that outperformed last year. Contrarian plays include utilities, telephone stocks, and banks. For 2010 analysts favored healthcare and technology stocks, two of the three weakest sectors in the S&P 500. Stocks with the most buys rose 8.7% in 2010, while those with the fewest rose 20%.

The BCS championship game is tonight, and while I’ll be rooting for Oregon, my sense is that the trophy stays in the state of Alabama.

Have a great day

Ned