Monday, November 9, 2009

Morning Note...

S&P500 Futures are up 85bps this morning as the USD is down 90bps…Gold continues to make news highs as it surges over $1100/oz…all off the lack of dollar commentary (but you know what they’re thinking) from the G-20 meeting this weekend.  Further, G-20 governments gave a clear signal that stimulus will continue until such time as it becomes abundantly clear that it is no longer necessary.  In other words, no one plans on sticking their neck out (a la Norway, or Australia) to prick the stimulus bubble anytime soon.  Haven’t we already seen this movie, starring US housing and Alan Greenspan?  One interesting tidbit out of the G20:  Someone floated the idea of taxing “risky transactions” to fund future bailouts (the Tobin Tax).  Treasury Secretary Geithner, among others, talked down this possibility, which would effectively be a tax on Wall Street.  In corporate news, GE and CMCSA have settled on ~$30B value for NBC Universal.  CBY LN rejects formal offer from KFT.  FRE posts better-than-expected earnings.  BRK/A also reports better-than-expected. 

Light week of data ahead and relatively quiet on the news front this morning…  Key data (FOMC decision last week, 10.2% unemployment Friday, Retail and Auto Sales) is essentially behind us.  Looking ahead, we’ll see some retail sector earnings this week and get economic data out of China Tuesday night, along with $81B in Treasury auction results in the US.  Remember that Wednesday (Veteran’s Day) is a holiday for both banks and the bond market.  The theme into year-end continues to be USD weakness and reflation vs. institutions taking profits to lock-in 2009 gains.  Where’s the tipping point?  Regarding the USD, ResearchEdge’s note this morning captures the key issues quite well:

The inspiration that the world's economic leaders derived from Timmy Geithner at this weekend's G-20 meetings in Scotland must have been profound. The US Dollar continues to crash this morning.  Trading down a full percent in a day, for any currency (never mind the world's said reserve currency), is a really bad day. This morning marks the largest one-day drop in the US Dollar since July 31st. The Buck is Burning...

Why? Take your pick: 1) Bernanke - pandering to the political wind last week, keeping rates at an "emergency rate" of ZERO percent, 2) G20 - no one trusts Geithner or his suggestion that countries "take a chance again on the American economy", and 3) US Employment - that was a nasty report on Friday

So is the US stock market up (the SP500 is up for 5 days in a row, and futures are indicated up again this morning)? That's easy an easy answer: The US Dollar. The US Dollar was down for the fourth week out of the last five. It has lost -16% of its value since March.  What's negative for the US economy is negative for the US Dollar. What's negative for the US Dollar is positive for most things priced in dollars. If you didn't know about this perverse relationship between the price of the US Dollars and everything else, now you know.

With Bernanke and Geithner politicizing the short end of America's yield curve last week, the Piggy Banker spread (or Yield Spread, which is 10-yr UST yields minus 2-yr UST yields) has shot up to +266 basis points wide this morning. That's only 10 basis points shy of the widest spread EVER. Ah, if we commoners could only have a sip of that government sponsored elixir. Free moneys from the heavens, for a select few...  The immediate term risk/reward scenario I see starting to build in the US equity market has turned decidedly negative in the last 2 days of this low volume rally. I see -3.5% downside in the SP500 to 1030, versus less than +1% upside to 1077. I'll be selling strength again today.

VRSN cut to Sell at GSCO.  RIMM cuts at SUSQ.  ADBE upped at GSCO.  JPHQ raises ARIA.  BKD announces 11M secondary.  KBWI ups BX.  GSCO cuts CRM.  DISH misses by 26c.  MSCO ups ENR.  EWBC acquires United Commercial Bank.  NAT posts loss and cuts dividend.  RHB announces 4.35M offering.  GSCO ups SD.  VE maintains guidance.  GSCO ups WMS, STR.  BARD ups ASTE.  BCAP ups CRL, GPS.  GSCO cuts EOG, RHT.   

Asia higher overnight.  Europe roughly 150bps higher.  USD -1%.  Gold +1%.  Oil +140bps.  Bond prices higher, yields lower.  Today marks the 20th anniversary of the fall of the Berlin Wall…where were you?

Brightpoint News: 

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

S&P 500 PreMarket (last/% change prior close/volume): 
RADIOSHACK CORP        19.74    +11.27%           83112
PROGRESSIVE CORP       17.33    +7.44%             300
EXCEED CO LTD             9.75      +5.29%             3150
ABERCROMBIE & FI        36.76    +5.0 %              103330
KEYCORP                       5.97      +4.19%             8875
ADOBE SYS INC              36.10    +4.18%             5000
NORTHROP GRUMMAN    54.49    +4.05%             200
MARSHALL &ILSLEY        5.41      +4.04%             450
MBIA INC                       4.51      +3.68%             29289
DYNEGY INC-A                2.00      +3.63%             11000
TENET HEALTHCARE       5.29      +3.52%             1500
VORNADO RLTY TST      63.07    +3.43%             900
AMERICAN TOWER-A      37.55    -3.12%              100
TESORO CORP               14.40    +3.08%             12230
MASSEY ENERGY CO       33.75    +3.02%             100

Today’s Trivia:  What is the largest employer in the Miami area?

Yesterday's Answer:  “Two eggs…wreck ‘em, add shingles with a shimmy, plus moo juice and a squeeze, add a cup of joe, and put it all on wheels, and hey…do you have any lumber?” means “Two scrambled eggs, toast with jelly, milk and OJ, coffee…to go…and do you have any toothpicks?”

Best Quotes: “The G-20 silence on the dollar has global equity markets in rally mode. Asian equities rallied after G-20 governments agreed to maintain stimulus efforts. There is a similar tone to equities in Europe, which is up 1.7% in the aggregate. In bondland, there is a 2bp sell off across the curve, with the 10-year note yield at 3.52%. In the FX market, the dollar is selling off sharply against most major currencies. The DXY index is off 0.8% and this is helping provide a lift to the commodity complex. Oil is up $1.20 to $79 a barrel and gold is up $14 to $1109 an ounce. Global economic recover theme stays intact as German exports came in well above expectations, rising 3.8% MoM in September against consensus estimates for a 2.5% MoM increase. The week ahead: The week ahead provides a breather for investors – one that is interrupted by Veteran’s Day on Wednesday (US bond market is closed but equity markets are open).  The Fed’s Senior Loan Officer Survey, released early in the week, will provide us with an update of credit conditions heading into 4Q.  We anticipate an ongoing improvement in lending standards (though still relatively strict) for consumer credit and mortgage loans.  On the same token, demand will likely show only a modest uptick.  In contrast, watch for conditions in commercial real estate to remain depressed, as this sector still faces substantial headwinds (rising vacancy rates and falling demand) and is expected to lag overall in the economic recovery.  Later in the week, initial unemployment claims are forecast to break below 500K for the first time since January – an important development that would solidify our call that the labor market is in the process of bottoming out.  By year-end, we expect claims to fall to between 450-475K – a signal that net gains in non-farm payrolls are likely close behind. Technically, internals look weak to mixed. We broke above the wedge and while volume is not impressive the US Dollar carry trade seems to be the theme that allows us to go higher. Keep an eye for any dollar reversal. Sell weakness.”  --BofA/MLCO trading

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