Morning Note...

Futures are flat to slightly (+5bps) higher this morning on a flat USD and talk that Treasury Secretary Geithner is planning to extend the $700B TARP program beyond its December deadline and to October 2010.  Overseas, UK’s finance minister sees recovery and expected growth rates of +1.5% in 2010 and roughly +3.5% in 2011 and 2012.  At the same time, he announced the UK is expected to borrow an additional $8.2B over the next four years.  He also announced at 50% tax on bonuses over $41k.  Sovereign debt concerns abound, as the “private-to-public debt shift” theme begins to play out…fears of Greek default continue this morning.  S&P also lowers Spain’s credit rating to negative.  In Asia, Japan posted a significant downward revision to Q3 GDP.  In corporate news, BEN announced November assets-under-management increased 33% year-over-year, CITI ups MMM, UBSS cuts KR, and TXN raises Q4 guidance.  Further, BCAP cut KMB and the WSJ reports that PG could buy SLE’s air-care unit “within days.”  Additionally, the Treasury Dept announced that a secondary offering of 88.4M JPM warrants has commenced.  On Capitol Hill, debate continues over the Health Care Bill - for the moment, it looks like the “public option” is out.  Mortgage Applications were up 8.5% this morning, which is the highest level in two months.  Wholesale Inventory data is due at 10am. 

Interesting mention of GS action on a couple of morning notes today… Termed “the canary in the coalmine” of the markets, GS broke below key support levels yesterday and will be closely watched for indications of overall market sentiment.  According to the NY Times, estimates from a panel at the 37^th UBS Global Media & Communications conference yesterday said worldwide advertising spending is expected to climb year-over-year, but that the US recovery is expected to be less robust than elsewhere and “demand will remain especially weak for ads in print media.”  It might be worth noting that The South China Morning Post reported UPS cargo volume in HK has climbed to 2007 levels and perhaps even higher on the heels of a recovering economy.  Goldman Sachs financials conference continues today…according to Goldman’s recap from yesterday, “Challenges remain but there were signs of stabilization. In some ways, the biggest news was lack of news. A lot of investors expected preannouncements and there were none.”  For those into technicals, here’s this morning’s take from the folks at MKM:  Today’s bias is higher as the market benefits from an oversold bounce within its intraday trading range. A breakout above initial intraday resistance (see below) would put the market in a good position to register new recovery highs this week. The DXY already is overbought from a short-term perspective, with resistance near 77, so we do not think it will be a lasting headwind.

CITI ups S, MMM.  WSJ reports talk between BA and RYAAY have broken down over an order for 200 of BA’s 737s.  Accenture cut at KAUF.  DBAB ups CA.  Janney cuts CFX.  CKR lower on earnings.  CMTL beats by 8c.  COO reports in-line, WEFA upgrade.  DNDN announces 15M share offering.  DPS confirms to license certain brands to PEP following acq of its largest bottlers.  JAZZ, VNDA initiated Buy at JEFF.  OPCO ups LQDT.  MOV misses by 53c.  MW beats by 4c but guides lower.  WSJ reports RBS & Sempra to explore sale of joint venture.  JPHQ ups RNWK.  SAI beats by 1c.  WCRX upped at MSCO.  UBSS ups ARAY.  BCAP cuts KMB.  FBRC cuts OLP. MACQ cuts LLL, RTN.  UBSS cuts KR. 

Asia lower overnight.  Europe roughly 50bps lower on average.  USD flat.  Oil +20bps.  Gold -50bps. 

Brightpoint News: 

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

S&P 500 PreMarket (last/% change prior close/volume): 

SPRINT NEXTEL CO        4.13      +5.63%             2387819

DEAN FOODS CO            18.00    +5.51%             1200

LENNAR CORP-CL A        12.22    +3.38%             1400

LIZ CLAIBORNE               4.85      +3.19%             200

CA INC                          22.56    +2.97%             10940

MBIA INC                       3.72      +2.76%             34194

INTL PAPER CO              26.35    +2.37%             200

ALTERA CORP                23.07    +2.35%             435

TEXAS INSTRUMENT      25.76    -2.16%              137280

TENET HEALTHCARE       4.89      +2.09%             2816

Today’s Trivia:  What city, whose named is derived from the Sanskrit for “lion city,” is the current home of international investor Jim Rogers?

Yesterday's Answer:  The first motorized taxi appeared in NYC in 1907, and the name “cab” came from “cabriolet,” the term for a one-horse carriage let out for hire.   

Best Quotes:  “Debate begins on “Too big to fail” legislation today.  As has been the case with legislation from Congress through this entire financial crisis, this legislation is misguided and off target.  I believe Jamie Dimon seconded these notions yesterday when presenting at the GS Conf.  While Sandy Weill could possibly be one of the major culprits in the environment that fostered many of the problems we are dealing with now, his letter to the WSJ a few weeks back was pretty much spot-on with what needs to change from a legislative side.  First, let’s run thru what the currently debated legislation proposes to do:

1)      provides the gov with the authority to break-up a company it deems a “grave threat” if poses a risk to the US Economy

2)      requires institutions with over $50B in assets to prepay into a fund to help prevent future financial collapse

3)      provide the government with the ability to separate commercial and investment banks

4)      force secured lenders to take up to a 20% loss if a large bank fails

1,2, and 4 are not even worth discussing as they are just plain socialist in nature.  With respect to number 3, either repeal Glass-Steagall or uphold it.  Allowing some bureaucrat to pick and chose who is subject and who isn’t doesn’t make sense. 

What should happen is as follows (among others):

1)      Eliminate CDS swaps.  We have instruments where you bet against companies, they are called puts. When a company fails, the equity is first to go, so as short seller/put buyer of a company’s stock in a failure situation, you are assured of a max profit.  Or, if you want to go up the cap structure, you can short bonds.  Erratic trading in CDS swaps just cause people to panic, as they reflect the solvency of an institution, so if CDS spreads widen (even if the company is not at risk of defaulting) people fear it as such and exacerbate moves on the downside in related securities of that company.

2)      Eliminate off-balance sheet accounting.  If you want to invest in it, put it on the balance sheet.  Nothing is hidden and investors have full disclosure.

3)      Seems the largest problem among troubled institutions was the leverage level.  Put limits on leverage for investment bank operations.  In addition, put regulators in place who understand what investment operations look like.  AIG is a prime example of this.  The insurance regulator of NY, throughout the entire crisis, continued to say that they only monitor the insurance operations, not the capital markets operations.   This aspect left AIG free to lever up their OTC derivatives operations with no controls on capital.

Nice to see that Burton Malkiel wrote a letter to the WSJ Opinion section this morning stating how the 0.25% tax on financial transactions would idiotic.  Good read.”

--Wells Fargo morning note