News Review - Fed Fumble, Tax and Unemployment Debate, Portuguese Bank Ratings, Iran and Korea

Dead on Arrival

Between a bombardment of Bernanke and Lacker Fed fire, and a ratings threat against Portuguese banks, not to mention yellow cake baking by the Iranians, the market had little chance entering the week.

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News Review

Ben Bernanke appeared on 60 Minutes and warned the economy was not out of the woods just yet, and might slip back into recession. Then Monday, frequent Fed dissenter, Richmond Fed President Jeffrey Lacker, outlined his concerns about ongoing Fed dovishness. These were not market inspiring sound bites, as you might have imagined, and so stocks sank on Monday. The Dow greeted traders with a gap-open lower, but ended the day off just fractionally.

Jobs and Tax Support Under Debate

With no economic reports on the schedule, market focus turned to Washington and abroad. The US Senate might vote this week on whether to extend the Bush-era tax cuts. Meanwhile, unemployment insurance extensions have expired, with some 2 million unemployed Americans due to be left on their own in an abyss before month's end. This has some pundits discussing a hopeful deal to extend jobless benefits in exchange for the extension of Bush-era tax breaks.

However, the extension of unemployment insurance is not a bargaining chip. Republicans will be held accountable for holding up these benefits on their premise of funding concerns, as it would be unprecedented. We doubt the GOP wants to answer questions about why they held up these critical payments in two years time, with the Senate and US presidency at stake. Thus, if I were the President I would hold tough on this one and wait the GOP out. Republicans must come to the table on this. A deal to find middle ground on the point of taxation for the rich seems likely around the $1 million income mark, up from the $250K threshold previously set; Democrats are already there.

CITNJNY is a Sort of Pig

California's legislature is holding a special session to discuss the state's massive $6 billion budget deficit, which is projected to reach upward of $21 billion in 2012. The Governator declared a fiscal state of emergency this evening. A Wall Street Journal article published recently highlighted the fact that California, Texas, Illinois, New Jersey and New York are analogous to Europe's PIIGS nations. That implies these sickly states might sink us all. As a result, pressure is expected to rise in DC for another government bailout, but national support might not be there this time. The Journal article suggests bankruptcy might be the best option for the subject states, allowing the troubled group out of their huge employee pension liabilities. However, the damage to municipal securities would be beyond bearable, in my view. You might want to reconsider some of those gambles, once considered the safest of bets.

Portugal Seeks to Stave Off Bank Ratings Downgrades

Speaking of the PIIGS, Portuguese banks face a near-term stress test, in an effort to avoid threatened downgrade by S&P and perhaps other rating agencies. This stress test follows the transparency trend globally, giving speculators and general panic less room to do in sovereign debt costs, currencies and economies. It's surely a good thing, unless it turns up more debt dirt. However, in the past, we have seen these tests backward engineered via data mining to guarantee passage. This should render them useless to the eyes that matter (rating agencies), but considering the recent ineptness of those eyes, you never know...

Iran and Korea Baking Away

Iran and North Korea dominate the geopolitical wire again this week, with Iran announcing Sunday that it has produced yellow cake. That's not a sort of yummy pound cake unfortunately, but rather it proclaims that Iran has completed the nuclear cycle and is self-sufficient in that dastardly regard. The announcement was well-timed too, coming just as the pushy Persians field questions about WikiLeak rumored receipts of medium range North Korean missiles. Today, the Iranians are meeting with U.S., European and others in Geneva, where they have been reportedly more receptive to talks. However, Iran brought up the taboo topic of UN involvement in the assassination of important Iranian scientists, as their names had been published in a UN resolution just prior to their mysterious demise.

Corporate News Wire

The corporate wire highlights Salesforce.com's (NYSE: CRM) Dreamforce customer conference in San Francisco. Look for investor day data emanating from Metlife (NYSE: MET), SL Green Realty (NYSE: SLG) and Fidelity National Information (NYSE: FIS). Gulfport Energy (Nasdaq: GPOR) held a conference call on its Grizzly Reserve and Canadian Oil Sands activity.

UBS kicked off its Global Media and Communications Conference, highlighting presentations by McGraw-Hill (NYSE: MHP), Charter Communications (Nasdaq: CHTR), AboveNet, Inc. (Nasdaq: ABVT), Sirius XM Radio (Nasdaq: SIRI), AT&T (NYSE: T), Interpublic Group (NYSE: IPG), Six Flags (NYSE: SIX), Bloomberg, JCDecaux (OTC: JCDXF.PK), Sony (NYSE: SNE), Leap Wireless (Nasdaq: LEAP), Sprint Nextel (NYSE: S), CBS (NYSE: CBS), Level 3 Communications (Nasdaq: LVLT), Take Two Interactive Software (Nasdaq: TTWO), Central European Media Enterprises (Nasdaq: CETV), Liberty Global (Nasdaq: LBTYA), TDS (NYSE: TDS), CenturyLink (NYSE: CTL), Liberty Media (Nasdaq: LINTA), Thomson Reuters (NYSE: TRI), Lions Gate (NYSE: LGF), Time Warner Cable (NYSE: TWC), Clearwire (Nasdaq: CLWR), Time Warner (NYSE: TWX), Comcast (Nasdaq: CMCSA), Meredith (NYSE: MDP), TiVo (Nasdaq: TIVO), MetroPCS (NYSE: PCS), ValueClick (Nasdaq: VCLK), Discovery Communications (Nasdaq: DISCA), MSCI Inc (Nasdaq: MSCI), Verizon (NYSE: VZ), eBay (Nasdaq: EBAY), Viacom (NYSE: VIA), Electronic Arts (Nasdaq: ERTS), New York Times (NYSE: NYT), Virgin Media (Nasdaq: VMED), Frontier Communications (NYSE: FTR), News Corp. (NYSE: NWS, Nasdaq: NWSA), Washington Post (NYSE: WPO), Gannett Co. (NYSE: GCI), Publicis (OTC: PUBGY.PK), Wolters Kluwer (OTC: WOLTF.PK), GeoEye (Nasdaq: GEOY), Qwest (NYSE: Q), WPP (OTC: WPPGF.PK), Grupo Televisa SA (NYSE: TV), Rogers Communications (NYSE: RCI), Yahoo! (Nasdaq: YHOO), GSI Commerce (Nasdaq: GSIC), Scripps Networks Interactive (NYSE: SNI) and IAC/Interactive Corporation (Nasdaq: IACI).

The day's EPS reporters included Dollar General (NYSE: DG), Mesabi Trust (NYSE: MSB), ModusLink Global Solutions (Nasdaq: MLNK), Pep Boys (NYSE: PBY), Photronics (Nasdaq: PLAB), Resource America (Nasdaq: REXI), Spectrum Brands (NYSE: SPB) and Transgenomic (Nasdaq: TBIO).



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