Wednesday, December 23, 2009

Morning Note...

It’s “déjà vu all over again” as futures are +30bps this morning and the Bloomberg headlines are exactly the same as the past two days:  “Stocks climb in Europe, Asia on Signs Economy Recovering.”  Take it from guys like me who scour Bloomberg news each and every morning – this is what they say when they have nothing else to say…  And for what it’s worth, the always-popular “anecdotal indicators” point toward a very slow day:  traffic on the roads was non-existent (although it is Miami and I’m not sure what the relevance of that is, but there used to be a direct correlation between “subway crowdedness” and “equity volumes” in New York City), and 75% of this morning’s research e-mails are coming in from names I don’t recognize, i.e. back-ups to our normal coverage… There is some economic data this morning:  Personal Income for November was +0.4% vs. +0.5% expected; Personal Spending for November was +0.5% vs. +0.7% expected; the Personal Consumption Expenditure Core Price Index (PCE) was in-line with expectations, +1.4% year-over-year and flat month-over-month.  UofMichigan Consumer Confidence readings are due at 10am today, along with New Home Sales.  In corporate news, technology companies MU (+3% premkt) and RHAT (+7% premkt) beat earnings estimates, while uniform-maker CTAS fell short (-9% premkt).  In other news, an AMR plane from Miami bound for Kingston, Jamaica overshot that runway in a rainstorm and injured roughly 40 people. 

Interesting story this morning about shrinking consumer credit threatening almost $9B in holiday sales stemming from new credit-card legislation: 

Target Corp. and U.S. retailers may lose almost $9 billion in holiday sales as banks rein in lending to cash-strapped consumers before a new credit-card law takes effect…Target Chief Financial Officer Douglas Scovanner says the credit-card legislation is exacerbating a spending slump just as consumers begin to consider more discretionary purchases they would usually buy with credit. Items such as clothing, jewelry and home goods suffered steeper declines during the recession and are among the most profitable sales for retailers. “It will mute the impact of the rebound that would have otherwise occurred,” Scovanner said. “Diminished availability of credit equals diminished spending.”  Reduced lending may shave at least half a percentage point off sales at stores open at least a year once more of the Credit Card Accountability, Responsibility and Disclosure Act goes into effect in February…The act bans so-called universal default, the practice of raising interest rates based on a missed payment with another lender. The rules are already causing lenders to “tighten up,” said Brad Jolson, senior director for risk management solutions at Fair Isaac Corp. FICO, as the company is known, is the Minneapolis-based provider of the credit-scoring formula most widely used by lenders. Available credit to U.S. consumers through cards fell to $3.6 trillion this year from a peak of $4.7 trillion last year, according to a study released in July by TowerGroup, a Needham, Massachusetts-based financial research and advising firm. “We’re scared to death of what this law is going to do,” said Edward Record, CFO at Stage Stores Inc., the Houston-based operator of 759 stores including the Bealls and Peebles chains. “It’s definitely going to hurt consumer spending.”

BERN initiates DG at Outperform.  Collins Stewart positive comments on T.  SUSQ initiates NFLX with positive rating and $70 tgt.  BofAMLCO ups WPI.  BCAP ups SLB.  KBWI ups PNFP.  BofAMLCO cuts IPXL.  Soleil cuts XOM.  WSJ positive article on retailer JWN.  NY Post reports PEP CEO may lose her job, given -7% return since her promotion to CEO vs. +28% for KO in that time.  FPL lowered guidance.  TIBX missed by 1c.  WELA ups GCI, NYT.  GLW raised at THNK.  TWPT ups NEWP.  SNDK upped at THNK.  RIMM suffered a system-wide Blackberry outage last night. 

Asia up overnight.  Europe up roughly 50bps.  USD -23bps.  Oil +50bps.  Gold +5bps. 

Brightpoint News

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

S&P 500 PreMarket (last/% change prior close/volume): 
CINTAS CORP                26.93    -9.27%  7735
BALL CORP                    54.14    +4.54% 100
EASTMAN KODAK           4.48      +3.7 %  8200
MICRON TECH                9.74      +3.51% 326811
NEW YORK TIMES-A       11.30    +2.45% 1600
YAHOO! INC                   16.35    +2.32% 35522
KB HOME                       14.10    +2.17% 6229
TENET HEALTHCARE       5.43      +2.07% 57365

Today’s Trivia:  Who tried to steal Christmas from the "Whos of Whoville" in the 1966 cartoon based on the Dr. Seuss Story?

Yesterday's Answer:  According to my extensive (ha!) research on Wikipedia, only Ireland, Portugal, San Marino, Vatican City, and Monaco border only one other country.  And yes, the Chunnel connection between UK and France constitutes a border (meaning the UK borders France and Ireland), as does a Danish bridge to Sweden (meaning Denmark borders Germany and Sweden). 

Best Quotes:  “Highlights from Weeden & Co’s program desk, which sees a lot of hedge fund flow:
**We have been net sellers 4 out of the last 5 days. Active accounts have been net buyers while quant's have been sellers. Clients have been moving down the market cap curve. **Consumer Discretionary: We were large net sellers yesterday after 3 days of being dollar neutral or net buyers. Active accounts rotated out of durables and retailers. **Health Care: This was our largest sell skew yesterday and we have been net sellers the last 5 sessions. Quant's have been rotating out of the space. ** Financials: We finished the day as net buyers after 3 consecutive days of being net sellers. Active accounts were buying bank and reit issues.”

“‘New Normal’ Tops 2009 List of Overused Phrases: 2009-12-23 02:00:00.2 GMT
Commentary by Caroline Baum
     Dec. 23 (Bloomberg) -- For journalists, pundits and comedians, the end of the year provides an opportunity to look back, fantasize forward and let the creative juices flow.
     We churn out 10 Best and 10 Worst lists. We reprise the year’s most memorable moments and worst embarrassments. We reflect on famous people and infamous scallywags, current events and eventful currents, the highest highs and lowest lows.
     When I started to think about 2009, it wasn’t events that came to mind but words and phrases: trite, overused words and phrases, such as “new normal,” “unprecedented,” and “exit strategy.”
     One picture may be worth a thousand words, but one word can unleash a year’s worth of memories.

     1. “New normal”
     In May 2009, the folks at PIMCO emerged from their secular outlook forum to codify their forecast for slower growth, increased regulation and a decreased role for the U.S. in the global economy as the “new normal.”
     They weren’t the first. Back in 2001, Warren Buffett and John Bogle warned of a new normal of single-digit stock market returns. A book by that name was published in 2004, spawning a companion Web site (
     As it turns out, the phrase has applications in almost every field: technology (its transformative power); science (American women are getting fatter); medicine (early puberty for girls); management (constant change is the new normal, according to the Harvard Business Review); and higher education (less financial support from state budgets and endowments).
     As a way of describing the U.S. economy, the new normal has merit. ObamaNation is looking at bigger government, more regulation and an aging population commanding more resources.
     Unfortunately, overuse has rendered new normal meaningless.

     2. “Unprecedented”
     If the events of 2008 and policy response were unprecedented, the post-mortems in 2009 drove the point home -- ad nauseam.
     From the collapse in home prices to the government’s co- option of mortgage finance; from the freezing up of financial markets to the failure of big and small firms; from the efforts by the Treasury and Federal Reserve to keep the ship of state afloat to the government’s ownership stake in the private sector: Everything, it seems, was unprecedented.
     The inauguration of the first black president was unprecedented. Barack Obama, hailed as an agent of change, pledged to change the way Washington operates.
     Eleven months into Obama’s presidency, Washington is probably the only entity to eschew the new normal (see No. 1 above) for more of the same.

     3. “Exit Strategy”
     Everyone needs an exit strategy. Just ask Jenny Sanford, wife of the philandering South Carolina governor, and Mrs. Tiger Woods.
     The Fed needs an exit strategy following a period of unprecedented (see No. 2 above) accommodation. Policy makers have enunciated one without a timetable for implementation.
     The central bank plans to whittle down its balance sheet by natural attrition, terminating emergency lending facilities and selling assets or draining reserves on a temporary basis. It can raise the interest rate it pays on reserves to prevent excess credit expansion, an idea that may work better in theory than in practice.
     Unlike the Fed, the U.S. military has a date for leaving Afghanistan and no real exit strategy. President Barack Obama said the U.S. will start the transfer of authority to the Afghans in July 2011. His National Security Adviser, General James Jones, admitted the U.S. will be in the region “for a long time.”
     Or, in Fed parlance, “an extended period.”

     4. “Green Shoots”
     “I do see green shoots,” Fed Chairman Ben Bernanke told CBS’s “60 Minutes” last March, a forecast worthy of Chauncey Gardiner, the child-like sage in Jerzy Kosinski’s “Being There.” (“There will be growth in the spring,” Chance said.)
     Pretty soon everyone was going green. The media sent out reconnaissance teams. Economists incorporated green shoots into their forecasts. It was a veritable garden of foliage sightings.
     The shoots matured and produced blooms in the third quarter. The U.S. economy expanded at a 2.2 percent annualized rate following four consecutive quarterly declines.
     All this flora talk was starting to get to a friend of mine. “If the leaves would just stop falling, I could see the green shoots,” he said.

     5. “Uncertainty”
     Uncertainty gained a new cachet in 2009 and in certain circles, especially those responsible for setting policy. The frequency with which the Fed and European Central Bank use uncertainty to qualify the forecast leads one to believe uncertainty is unique to bad times.
     It isn’t. A little more uncertainty about the degree to which the subprime crisis was “contained” and a little less “irrational exuberance” over condo-flipping, and we might not be in the shape we’re in.

     6. “Historic Opportunity
     Historic opportunities were a dime a dozen this year. Obama seized some of them (embracing Islam with a speech in Cairo), squandered others (refusing to meet with the Dalai Lama before his visit to Beijing) and had to settle for a photo-op in still others (the Copenhagen climate summit).
     The biggest historic opportunity still lies ahead: health- care reform. Obama has been exhorting Senate Democrats to “seize this historic opportunity” (and cement his legacy) by enacting sweeping legislation that expands health-care coverage, creates a new entitlement and does little to address misplaced incentives (third-party payers) or control costs.
     The Senate is expected to pass its health-care bill as soon as tomorrow on a 60-40 party line vote. The House and Senate must then reconcile their different versions.
     The more the American people know, the less they like the idea. This may be one historic opportunity Obama will wish he missed.

     (Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)”

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