Thursday, December 24, 2009

Morning Note...

Hmmm… I sense a theme.  Futures are +25bps this morning and the Bloomberg headline exclaims “Stocks Rise Around World on Economic Recovery.”  As I mentioned here yesterday, this is generally code for “all is quiet, there is not much news but it’s as good a headline as any…”  There is some mixed economic data, however, as Durable Goods Orders were slightly worse than expected at +0.2% vs. 0.5%/e.  Initial Jobless Claims were better, at 452k vs. 470k expected; and Continuing Claims were 5.076M vs. 5170M expected.  Obama spoke this morning about the Senate’s passage of the healthcare bill.  The war of words to capture the hearts and minds of Americans is on, however, as Democrats defend the Bill as “an honest effort to reform healthcare” and Republicans are outraged over the “$2.5 trillion cost and subsequent tax raise needed to fund it.”  As expected, voting was strictly across party lines – no one crossed over.  Across the pond, Amherst grad and Greek PM George Papandreou won passage of a 2010 budget aimed at waylaying default fears.  A more detailed plan addressing additional deficit-reduction measures is expected before the EU in January.  Market closes at 1pm today. 

Note that today marks the beginning of the “official” Santa Claus rally period – the last five trading days of the year when a positive bias generally prevails.  Great point from another impressive Amherst alum this morning – CNBC’s Brian Shactman notes that December 24th trading is up 70% of the time…

Looking ahead to 2010, keep an eye on geopolitics…many market pundits focus on Iran & Israel, but here’s a cut and paste from this morning’s news wires.  And remember, Pakistan is a nuclear power, thus instability in that region is slightly more concerning than elsewhere: 

PESHAWAR, Pakistan, Dec. 24, 2009 -- A suicide bomber struck a neighborhood full of government buildings in Pakistan's main northwest city Thursday, killing four people and underscoring that militant groups retain strength despite being under siege by the army. The attack was the second in three days in Peshawar, and the latest in wave of violence that has killed more than 500 people in Pakistan since October. Insurgents are suspected of avenging a U.S.-supported Pakistani army offensive against the Taliban in a northwest tribal region along the Afghan border. The attackers have struck a range of targets, from markets popular with women to security checkpoints. Thursday's blast rocked a busy sector of Peshawar where buildings housing the state-run airline, a public school and a government insurance company were located.

Something else to be mindful of in 2010:  Regulation… According to the NY Times, “the creation and sale of synthetic collateralized debt obligations by firms such as GS, DB, and MS are the subject of scrutiny by Congress, the SEC, and FINRA. These regulatory bodies appear to be investigating whether securities laws or rules of fair dealing were violated by those companies creating and selling the product.” 

Finally, expect the theme of sovereign default to make headlines in 2010, and don’t forget default risk from our own states and municipalities.  (Side note:  Interesting NPR piece this morning on light retail sales actually eating into state revenues, as they collect roughly 10% less sales tax than prior holiday seasons.)  As you read the following, recall that California is the world’s 8th largest economy if considered independently.  Thus if Greece was able to cause such ripples in the world economy (ranked 27th), imagine the effect a major US state default might have, especially when it represents ~13% of US GDP: 

California Governor Arnold Schwarzenegger wants President Barack Obama to help ease large- scale cuts to the most populous U.S. state’s already diminished social programs amid a $21 billion anticipated deficit.  Schwarzenegger, a Republican, plans to ask for relief totaling as much as $8 billion, according to a California official who asked not to be identified because details haven’t been resolved. Instead of seeking one-time stimulus money or a bailout, the state wants the U.S. to reduce mandates and waive rules stipulating minimum expenditures on programs such as indigent health care, the official said.
California has been among the states most affected by the economic recession. It has the lowest credit rating and recorded the nation’s second-highest rate of home foreclosures, trailing only Nevada. Unemployment peaked at 12.5 percent in October amid the loss of 687,700 jobs from the year before, when the jobless figure was 8 percent. Wealth declined as the stock market lost 40 percent of its value in 2008. “The problem is that there are no easy solutions left,” said Jean Ross, executive director of the California Budget Project, a Sacramento-based research group concentrating on issues facing the poor. “Where do you go to cut that doesn’t permanently compromise the level of public services that this state needs to remain economically competitive and to have some semblances of a safety net left for vulnerable populations.” Schwarzenegger and lawmakers worked to close a record $60 billion gap from February through July with $32 billion in spending cuts, $12.5 billion of temporary tax increases, $8 billion of federal stimulus money and more than $6 billion of other one-time fixes.
California’s deficits show how local governments are being forced to chose between raising taxes or cutting more funding for schools, health care and other programs, even as the economy is emerging from the recession that began in December 2007. The nascent recovery has yet to produce any job gains, a drag on states that rely on income and retail sales taxes.

Crane Co. to acquire MRM for $16/share.  SLGN to replace MVL in S&P MidCap 400 Dec 31st

Asia higher overnight, led by +2.6% in Shanghai.  Europe slightly higher as Germany is closed.  USD -25bps.  Oil flat.  Gold +55bps. 

Brightpoint News

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

S&P 500 PreMarket (last/% change prior close/volume): 
TENET HEALTHCARE       5.74      +3.99%             107383
FANNIE MAE                  1.08      +2.86%             241310
JABIL CIRCUIT                17.49    +2.52%             3400
MICROCHIP TECH           28.38    -2.41%              1000
CITRIX SYSTEMS           42.83    +1.81%             1000
MEMC ELEC MATER        13.48    +1.74%             100
NABORS INDS LTD          23.25    +1.62%             100
NUCOR CORP                 46.80    +1.52%             7387

Today’s Trivia:  What is the real name of the Clement Clarke Moore poem that begins “Twas the Night Before Christmas…?”

Yesterday's Answer:  The Grinch tried to steal Christmas from the Whos of Whoville. 

Best Quotes:  (…best when read aloud…)

‘Twas the night before Christmas, when all through the firm
Not a creature was stirring, not this holiday term.
The stockings were hung in the kitchen high up,
To be used as replacements when we’re down to one cup.

The analysts were nestled all snug in their beds,
While visions of free-cash-flow danced in their heads.
I was dressed in some jeans, and a sharp sweater vest,
(As I’ve said all along, “Fall attire is my best.”)

When across Brickell Bay there arose such a clatter,
I sprang up from trading to see what was the matter.
Away to the window I flew like a flash,
And peered down below toward a rooftop pool splash.

The sunlight reflected off a neighboring condo,
Highlighting the bold scene unfolding below.
When, what to my wondering eyes should appear,
But our team of stock-pickers, and a carton of beer.

With a strange-sounding Brit who was leading the spree,
I knew in a moment it was A-V-D-B.
More rapid than eagles his drink-pours they came,
And he whistled, and shouted, and called people by name!

"Now Martin! now, Weissman! now, Wesley and Todd!
On, Marcelo! On, Nitin! on, the whole Brightpoint squad!
Cast off those knickers and drink like a man!
I know you can’t understand me…it’s all part of the plan!"

As vultures amidst Miami’s buildings will fly,
When they meet with an updraft, mount to the sky.
So across to the pool bar the analysts flew in a throng,
Clearly drawn by the beer…and by Adrian’s thong.

And then, in a twinkling, I heard out in our hall
The hemming and hawing of an analyst’s call.
As I tilted my head, and was turning around,
Into the office they all dropped in with a bound!

Adrian was first, tossing cockney and brew,
Speaking in tongues about implied vols and skew.
Marcelo was next, Shrek toothbrush in his hand,
Cursing in Portuguese about the Brazilian tax plan.

Martin’s eyes twinkled! his dimples how merry!
He sent off an email, typed on his Blackberry.
He spoke of Lockheed and their program to build jets,
(But please no more stories about the damn New York Mets!)

Then there was Weissman, gritting his teeth,
And the smoke it encircled his head like a wreath.
It wasn’t just the Mets that were driving him crazy,
It was Abercrombie & Fitch – retail sales were quite hazy!

Tyler was there, but he was just a bit late,
(He had some issues with vodka on the night before’s date!)
Todd’s net exposures fed his latest report,
Wesley was last…straight in from the airport.

They all spoke not a word, got straight down to their chores,
(Except of course Andrew, who recapped Giants game scores.)
Shrugging off the beer buzz and the pool party’s fun,
They took seats in the fishbowl…there was work to be done!

I got up from my desk, joined the team at the table,
And marveled as I watched our analysis stable.
Buy-Sell-or-Hold, they’ll figure it out,

They’re ahead of the curve, there is little to doubt.
Two-thousand-and-ten will be an exceptional year,
Great things are afoot – there’s good reason to cheer.

I’ll leave you with this, from the warm Florida clime:
"Happy Holidays to all…goodbye to Two-thousand-and-nine!”
And I hope I successfully seared in your brain,
The good tidings ahead:  less loss and more gain!
If that’s not enough, into your mind I have fried,
The words “Adrian” and “thong” nicely set side-by-side…

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