Wednesday, December 2, 2009

Morning Note...

Futures -10bps this morning as markets pause following yesterday’s strength and digest both Obama’s announced troop surge last night and worse-than-expected ADP Employment Data this morning.  A reading of -150k jobs was expected, yet -169k was posted.  On the plus side, this is the fewest jobs lost according to the ADP report (widely considered a preview of the official report Friday) since July 2008.  President Obama spoke at West Point and described an escalation of both troops and intensity to Afghanistan in the hopes of exiting the region earlier.  Late 2011 – 18 months from now – is the target date to begin withdrawal.  (Incidentally, for those of you interested in tracking political accountability, here’s a valuable resource:  The additional 30k troops would bring the total troops in the region to near 100k, or roughly double the level when Obama first took office.  Of course, the President made no mention of how we will finance the roughly $30B cost associated with this new strategy, which is somewhat disappointing.  In corporate news, LA Times reports that WFC is set to close 122 branches in California, ING downgrades financials overseas and CSFB posts a bearish note on UK banks, GM’s relatively new CEO steps down, and ABI closes the sale of its them parks to Blackstone.  In other economic news, according to the WSJ, the ECB is expected to announce tomorrow that it will begin to slowly remove stimulus.  Dubai’s debt issues move to the background, and most of the Middle East is closed into the weekend.  Fed’s Beige Book data will be released at 2pm, and provide further clues to those economic fundamentals watched closely by the FOMC.  Gold continues an upwards march over $1200/oz. 

Last night’s Presidential Address to the Nation underscores what may be the prevalent theme as 2009 closes – geopolitical events.  In other words, it doesn’t appear – barring some mindblowing “Black Swan” data release or news – that corporate events or economic fundamentals will move the needle very much throughout December.  As a result, expect markets to drift sideways to upwards, but remain wary of global events that could shake markets.  A couple of bearish commentaries were widely circulated around “the Street” yesterday, but did little to temper market gains.  I posted a John Hussman quote here yesterday (which can be found in their entirety here:, and we can add to that dire warnings from SocGen’s Global Strategist Edwards, who said “we still see much pain to come” for stocks in 2010 and 2011: 

U.S. equities will fall “substantially” below their March lows because the global economy will weaken in 2010 and stocks are expensive, said Societe Generale SA’s Albert Edwards.  The recession will worsen as businesses and consumers reduce debt and deflation remains a “key threat” for the world in the next one to two years, said Edwards, a global strategist for the Paris-based bank. Government bonds are a poor investment because yields may drop below 2 percent in 2010, while gold is cheap, he wrote in a research report today.
“Deep down, even the fiercest equity bulls must surely be doubting themselves,” said Edwards, who is based in London. He added, “thinking the unthinkable has paid off in the last decade and should continue to do so.”

WAG same-store-sales up 4%, stock is down 3.5%.  AGO upgrade at KBWI.  MSCO ups AMR, UAUA.  UBSS ups ARRS.  BofAMLCO ups CXS.  CSFB ups KBH.  CSFB cautious LYG, RBS.  CSFB cuts MTL, POM.  PDLI guides lower.  MSCO ups PFCB.  UBSS ups RFMD.  RGNC announces 10M share offering.  GSCO cuts STZ.  SWS announces 4M share offering.  ARO reports after bell tonight. 

Asia higher overnight.  Europe flat to slightly lower.  Oil -65bps.  Gold +80bps.  USD -5bps. 

Brightpoint News

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

S&P 500 PreMarket (last/% change prior close/volume): 
BIG LOTS INC                 24.32    +3.67%             199
WALGREEN CO               38.00    -3.48%              244668
INTL GAME TECH            18.28    -3.38%              4000
SUNTRUST BANKS          23.91    +3.06%             65865
KB HOME                       14.10    +2.99%             8810
CONSTELLATION-A         16.78    -2.72%              400
CONS EDISON INC          42.31    -2.31%              625
MBIA INC                       3.74      +2.19%             400

Today’s Trivia:  What percent of human beings who have ever lived are alive today?

Yesterday's Answer:  Apparently Buenos Aires, Argentina boasts the most psychoanalysts per capita in the world.  (And in the interest of avoiding an angry mob storming the trading desk, yes…Azerbaijan is also an acceptable answer to yesterday’s question!)

Best Quotes:  From a beer & beverage newsletter titled Blue Christmas…

“While there has been some buzz recently in the media about an economic recovery and robust holiday retail sales, the outlook continues to actually look rather bleak, according to survey results from Bill Pecoriello at ConsumerEdge Research.  Bill surveys 2,600 consumers on a variety of variables to tease out trends and patterns.  Bill found that "our research indicates a consumer base that continues to be very timid."  Unemployment north of 10% and underemployment continue to drag on folks' minds.  

Writes Bill:  "Given that we see 2.5x as many consumers indicating they are cutting back holiday spend (37%) versus those who are planning to increase their holiday spend (14%), we believe this is an ominous sign for retailers and manufacturers alike.  Even if a household is in the labor force, they are nonetheless very concerned about job security, and are scaling back their holiday spending as a result - Only 4% of the population believes that jobs are currently plentiful. Additionally, when looking at those who are currently employed, we see that nearly 45% are concerned about the job security of those employed in their household. Individuals who are concerned about job security are nearly twice as likely to be cutting back on their holiday." 

 As we've written before, unemployment is the key metric here.  The other metric is the savings rate, which is positive now after being negative for years.  There's just less cash out there to spend on beer.  Bill again:  "When looking at the 37% of the population that is intending to cut back their spending on gifts this upcoming holiday season, we see they have a materially higher credit card balance, indicating they are already financially-strapped heading into the holidays.” 

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