Wednesday, October 14, 2009

Morning Note...

Futures 1.4% higher this morning as last night’s post-close INTC earnings – combined with USD weakness – juiced global action overnight.  Asia was mostly higher (confidence numbers in Australia and better-than-expected Chinese exports helped as well) and Europe is tracking up over 2% this morning.  Additionally, JPM posted a big earnings beat, ABT topped estimates, and Advance Retail Sales for September were better-than-expected at -1.5% vs. -2.1%.  Remember, the retail sales data was expected to be quite low, given the “pulling forward” of demand on the Cash for Clunkers program.  CSX also beat by 3c.  Business Inventory data is due at 10am.  FOMC minutes from the most recent meeting are due at 2pm today.  Remember that GS, IBM, and GOOG report tomorrow.  BAC and GE report Friday.  Note that some measures of “risk appetite” show the highest levels since April 2006.

Given JPM’s earnings release, it’s as good a time as ever to quote Monday’s WSJ Heard on the Street column, which provides a solid – albeit cautious – and broad-based view of financials: 
Normality, if it comes, will be nasty for most banks.  When financial firms’ third quarter earnings roll in, the immediate debate will be over which lenders’ earnings will be the first to return to normal.  Such chatter could life bank stocks, because when bad-loan provisions start falling, it will juice profits for several quarters to come.  But, beyond an initial euphoria, investors need to realize how hard it will then be for most banks to post consistent loan and revenue growth.  The main problem:  Household balance sheets still look stretched.  Coming out of the 1990-91 recession, household liabilities were just under 90% of disposable income.  There was enough borrowing capacity among individuals to drive solid loan growth through the 1990s to leave that ratio at 101% in 2001.  The credit bubble hoisted that metric to a scary 138% in 2007 – and left the banks swamped with bad debt as the recession hit.  An adjustment back to around 100% might set the stage for a prolonged uptick in lending.  But that yardstick has dropped only to 129%.  As a result, banks now have two choices:  Repeat their recent mistake of lending to overburdened individuals.  Or battle with each other to lend to a small amount of credit-worthy customers. 

BMOC positive on ARO.  BCAP ups AMR, CAL; cuts JBLU, AAI.  BofA/MLCO cuts AIV.  GSCO ups CSC.  A-C-N upped at Janney.  JPHQ ups GG, ABX; cuts AGCO.  JPHQ initiates BRKR with OW and TSCO with UW.  TIN, APH, MOLX, TEL upped at Longbow.  WELA ups EROC, HOG.  WELA initiates CSCO, FFIV with OP and JNPR with MP.  Cautious note from BofA/MLCO this morning:  Despite a better economic outlook, we expect to see continued deterioration of CMBS credit parameters, for the time being, as weakening fundamentals compound the problem of over-levered loans. The 60+-day delinquency rate on the pre-2007 universe now stands at 3.56%, as a percentage of the current balance outstanding, after rising 32 bp in September. We have also seen a rise in loan liquidations as well as specially serviced and watchlisted loans over the past few months. ALTR reports in line.  ASML beat.  BX positive comments on economic recovery.  CNO announces Paulson to buy common stock and warrants.  GSK upped at UBSS.  RBS to sell off 300 branches according to FT. 

Asia mostly higher overnight.  Europe +2%.  USD -60bps.  Oil +1%.  Gold flat. 

Brightpoint News: 

Brightpoint PreMarket (yest close/premkt/% change/volume):

S&P 500 PreMarket (last/% change prior close/volume): 
AMERICAN CAPITAL        3.31      +6.09% 110715
PROGRESSIVE CORP       17.40    +5.78% 1401
CIENA CORP                  14.16    +5.2 %  128835
LEGG MASON INC           32.00    +4.85% 1000
ADV MICRO DEVICE        6.37      +4.77% 199367
SYMANTEC CORP           17.68    +4.62% 2000
INTEL CORP                   21.39    +4.39% 3688782
GENWORTH FINANCI      11.50    +4.07% 85589
PULTE HOMES INC          11.02    +4.06% 16307
HARLEY-DAVIDSON         25.63    +4.02% 23200
MICRON TECH                9.00      +3.93% 76960
TEREX CORP                  22.50    +3.88% 1195
HARTFORD FINL SV        27.62    +3.83% 72931
JPMORGAN CHASE          47.41    +3.83% 3985926
ALTERA CORP                22.25    +3.82% 29490
EASTMAN KODAK           4.63      +3.81% 5374
LSI CORP                       6.00      +3.63% 4418
SUNTRUST BANKS          22.79    +3.54% 10566
ANHEUSER-SPN ADR       49.22    +3.51% 6994
PRINCIPAL FINL              28.75    +3.38% 100
MORGAN STANLEY         32.19    +3.37% 166044
PRUDENTL FINL              51.48    +3.35% 5842
NVIDIA CORP                 14.42    +3.3 %  80187
LINCOLN NATL CRP         26.94    +3.26% 1158
XILINX INC                     24.70    +3.22% 200
BANK OF AMERICA         18.38    +3.2 %  4517955
CITIGROUP INC              4.98      +3.11% 36348713
MOTOROLA INC             8.48      +3.04% 28758
CARNIVAL CORP             33.62    +3.03% 10980

Today’s Trivia:  What do the 50c coins of Australia, Tonga, Fiji, and the Solomon Islands have in common with the 20c coin of Mexico?

Yesterday's Answer:  Yesterday marked the 217th birthday of the White House, whose cornerstone was lain October 13th, 1792.   

Best Quotes:  “Earnings – Round One. Component Makers Versus End Product Makers – Humans are hard-wired to look for patterns. Psychologists tell us that as early as the second occurrence of an event, the human mind begins a pattern analysis. We plead guilty to that this morning. Away from the financials, we see a potential pattern in earnings. Johnson and Johnson, along with beverage giant Diageo came in with less than stellar results. They both sell their products to consumers or end users. On the other hand, Intel and BASF had blowout results. Both primarily sell their products as components. If this pattern were to continue through earnings season, what might be the cause? One possibility might be that component makers are benefitting from inventory rebuilding at the end product manufacturers. Economists have been predicting some rebuilding in inventories that had been drastically slashed to historically low levels. If the pattern does continue, it may not be what you would like, since it would continue to suggest that the consumer, the ultimate end user, is still sitting on the wallet. We will watch in coming days to see if the pattern is really a pattern or just an early, odd coincidence in earnings season.”  --Art Cashin, UBS

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