Wednesday, December 16, 2009

Morning Note...

Futures +40bps this morning as CPI data was roughly in-line and indicated subdued inflationary pressures.  Month-over-month CPI was +0.4% vs. the same expectation.  Year-over-year was also as expected, at +1.8%.  Housing starts were up 8.9% over the prior month to 574k.  Building permits were also higher, at 584k vs. 570k expected.  The Q3 currant account balance was also in-line at a deficit of $108B, but this is higher than the previous quarter’s $98B reading.  Markets are also buoyed by global financials, as Japanese and European officials apparently plan to give banks more time (until 2012 or 2013) to adapt to stricter capital rules under “Basel III” (The Basel Committee on Banking Supervision).  In fact, in Japan, banks enjoyed their biggest gains since May (MFG +14%) after it was reported banks there would be given 10- to 20-years to comply with stricter capital rules.  In corporate news, markets still await the pricing of C’s common stock offering which is intended to raise funds to pay back the TARP.  The latest chatter is $3.25 to $3.35 with books closing at noon.  INTC is sued by the FTC for “anti-competitive conduct” just as CITI ups INTC to “Top Pick.”  HON also lowered 2010 guidance.  Today’s big event will occur at roughly 2:15pm, as the FOMC will release its official statement after two days of deliberation.  While there was some chatter of a surprise interest rate hike yesterday, most pundits agree that the target Fed Funds rate will remain between 0% and 0.25%.  However, the statement will be closely read for any hints of future policy changes.  According to this morning’s Gartman Letter, the FOMC’s structure will preclude any policy changes for some time:

We can get this discussion of the Fed’s actions… or more properly, not action… in one swift sentence: nothing shall be done; absolutely nothing. The Fed is content at this point to punt any potential changes to its policies to the newly constituted committee that shall take its seats after the turn of the year [Ed. Note: Just for drill, we note that the Regional President rotate on and then off of the voting roster of the FOMC, with the President of the NY Federal Reserve Bank a permanent voting member of the committee. Thus this year the “voters” from the regions were, other than NY, the Presidents from Chicago, Richmond, Atlanta and San Francisco. Next year the Presidents from Cleveland, Boston, St. Louis and Kansas City will vote, and they are Dr. Sandra Pianalto; Mr. Eric Rosengren; Mr. James Bullard and Mr. Thomas Hoenig, respectively.]  The newly seated President’s will probably then “punt” any change in policy even further down the line, perhaps into the meetings late in the spring of next year, and only after the Committee is certain that unemployment rates have fallen for two or three months in a row.

Time Magazine announces Ben Bernanke as its “Person of the Year.”  Given that honor, it’s worth a look back at one of youtube’s biggest hits from 2006:  Note that there is a tremendous amount of open interest in 1100 strike S&P options – roughly 320,000 contracts.  As we’ve mentioned all week, expect that fact to keep us anchored around 1100 as we move into Friday’s expiry.  Volumes remain light.  Interesting retail chatter out of Wells Fargo today, as the NRF survey is released: 

NRF just published an updated survey on the holiday season. According to the survey, the average person had completed 46.7% of their holiday shopping by the second week of December, which is slightly less than last year’s level and the lowest percentage since 2004. Approximately 19% of shoppers had not even started their shopping as of late last week, and almost 9% were completely finished. Discount stores and department stores have been the most popular stops for holiday gifts so far, and apparel has been the leading gift so far this year. NRF continues to expect a 1% drop in holiday sales. Yesterday at the Credit Suisse Retail Roundup conference, J.C. Penney’s CEO Mike Ullman noted that the company has not yet seen a turn around in consumer shopping. Ullman said the retail environment was similar to last year, but with less clearance inventory and more planned promotions.

ROP to replace ESV in S&P500.  AIR higher on earnings.  ADBE beats by 2c and trades higher.  BGP announced it will work with Kobo Inc. to sell digital versions of books.  BCAP ups ABC.  DBAB ups SCHW, TROW.  GSCO ups CNQ.  JPHQ ups CCL, RCL.  UBSS ups DRI.  CSFB cuts FE.  DBAB cuts BEN.  SocGen cuts BBY.  SAM raised guidance. 

Asia mixed – only Japan was higher.  Europe mixed with UK flat while other markets are up roughly 75bps.  Oil +70bps.  Gold +77bps.  USD -12bps.

Brightpoint News

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

S&P 500 PreMarket (last/% change prior close/volume): 
ADV MICRO DEVICE        9.25      +4.88% 724361
NVIDIA CORP                 16.12    +3.0 %  12225
DARDEN RESTAURAN      33.37    +2.49% 2180
SCHWAB (CHARLES)       17.77    +2.42% 27747
PULTE HOMES INC          9.10      +2.36% 5500
CITIGROUP INC              3.48      -2.25%  53079513
MANITOWOC CO            9.65      +2.22% 3900
AMERISOURCEBERGE      26.35    +2.21% 7150
FREDDIE MAC                1.45      -2.03%  174798

Today’s Trivia:  Which US state boasts the most signers of the Declaration of Independence?

Yesterday's Answer:  Maine is the only US State with a one-syllable name. 

Best Quotes:  “Since Bush, Greenspan, Obama, and Bernanke have embarked on this cut rates to ZERO campaign of socializing Wall Street losses and privatizing levered up gains, the percentage of participants in the USDA's Food Stamp Program has almost doubled.

No, that's not a typo. The percentage of people in this country needing food stamps to eat has gone from 6% during Greenspan easy money Tech bubble in 1999 to over 11% today. One in four American children now participate in some form of food assistance program. How's that for "God's work."

This is plain sad. President Obama, these are your Fat Cats. Those who subscribe to starving their population's fixed income by cutting the rate of return on their savings accounts to ZERO, and reflating the cost of everything they have to pay for in their everyday lives.

Despite yesterday's November report showing a massive ramp in the monthly Producer Prices (+2.7% year-over-year inflation), this is what He Who Sees No Inflation (Bernanke) had to say to US Senator, Jim Bunning's request for reconciliation of the math:

"I continue to expect slack resources, together with the stability of inflation expectations, to contribute to the maintenance of low inflation in the period ahead."

Are you kidding me Ben? First of all, what does that mean? Second of all, what in God's good name does that do for the 99% of people on Main Street who are paying 2 times what they did last Christmas at the pump? Thirdly, are you kidding me?

The sad reality is that the Fed Chairman is an academic who specialized in researching the history of the Great Depression. He is not a risk manager. He is not a forecaster. He has never seen a price bubble, nor should you expect him to.”

--ResearchEdge Morning Note

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