Monday, January 11, 2010

Morning Note...

Futures +35bps this morning as China posted bullish economic data over the weekend and bullish sentiment in anticipation of a solid Q4 earnings season continues.  (It’s worth noting that China has now passed Germany as the world’s #1 exporter, and it has now passed the US as the world’s #1 auto market.)  Further, the market – perhaps in part to a weaker than expected jobs number last Friday – breathes a sigh of relief regarding the potential for stimulus withdrawal and continues to enjoy a “sweet spot” of low interest rates.  In that sense, last week’s “bad news” was actually good news for the status quo.   Also note that the “Fed heads,” including St. Louis President Bullard most recently, continue to publicly state that ZIRP will continue for “an extended period.”  In corporate news, Heineken is buying FMX’s beer business for $5.4B.  HOGS lowered guidance and is trading down.  MDRX posted better earnings than expected.  Note that earnings season officially kicks off with AA after the close tonight.  Looking back, it’s worth highlighting last week’s +10% move in the Banking sector.  Whether from sector rotation from 2009 leaders/winners (tech) to laggards (financials), earnings anticipation due to the steepened yield curve, an easier regulatory environment ahead, or a decrease in expected capital raises, last week’s move was significant.  Looking ahead, the Detroit auto show kicks off this week.  A Congressional Panel meets Wednesday to analyze the financial crisis – we may see some headlines as a result.  INTC and JPM report later in the week.  Credit card mater trust data will post Friday.  The Fed’s Beige Book is released Wednesday and Retail Sales will post Thursday.  Also, we’ll get the ECB’s rate decision on Thursday.  Finally, a group of top central bankers and financiers meets this coming weekend in Basel, Switzerland to discuss concerns that “financial firms are returning to the aggressive behavior that prevailed during the pre-crisis period.” (Financial Times)  In other news, in an anticipated move, Venezuela devalued its currency over the weekend, it order to “better align it” with the “true” black market rate. 

For a little local flavor, near-freezing temperatures in Florida continue to make news.  You’ve all heard the iguana stories and I can confirm them.  In fact, I hopped over a couple sizeable languid iguanas while out running yesterday – with thickened blood resulting from the cold temps, the iguanas experience anything from sluggishness to outright coma-like issues… As for the orange crop, here’s the latest courtesy of Clarence Beaks:  According to a Bloomberg News survey of analysts conducted last week, the USDA probably will cut its forecast tomorrow for Florida production. The state will produce 133.9 million boxes of oranges in the season that ends in July, according to the average of eight analysts in the survey. That’s down from an estimate of 135 million boxes in December and 162.4 million a year earlier. A box of oranges, each weighing 90 pounds (41 kilograms).  “While only 15 percent of the Florida citrus was impacted by a hard freeze this morning, fruit damage could expand to as much as 40 percent” of the main growing region tonight, Joel Widenor, a director of agriculture services at Commodity Weather Group LLC in Bethesda, Maryland, said yesterday in a note to clients. “Tree damage should be limited to less than 5 percent of the” citrus belt, he said.  While I haven’t taken the time to type in some of his better quotes, I nevertheless recommend Fred Hickey’s recent High Tech Strategist letter for some perspective on the recent decade and what may be ahead in 2010.  In a word, he’s cautious.  And for those interested in a true “cosmic” perspective re-set, please see the quote section below…it’s all fun and games until a black hole of our own creation swallows the Earth…

JEFF ups FRO.  ACI upgrade at MSCO.  GSCO ups ARUN.  CITI ups BP.  AURIGA ups INTC, B. Riley & Company ups UEIC, Bank of America Merrill Lynch ups ATI & CBL, Deutsche Bank ups CMG, GLW, PH, PNRA & RUTH, FBR Capital ups ASML, JPMorgan ups ZRAN, Macquarie ups STP, Societe Generale ups SPWRA, Thomas Weisel ups RGC, UBS ups LRCX, MFE & SNI, William Blair ups CPHD, Deutsche Bank cuts BKC & ROK, Goldman Sachs cuts AUO, Janney Capital cuts CAKE, DIS & PFCB, UBS cuts NU. 

Asia higher overnight.  Europe +50bps on average.  USD -50bps.  Oil +50bps.  Gold +150bps. 

Brightpoint News:  

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

S&P 500 PreMarket (last/% change prior close/volume): 
DEAN FOODS CO            16.5500 -9.22%  1600
SOUTHWEST AIR           11.8800 +4.85% 100
CB RICHARD ELL-A         14.82    +4.37% 525
CORNING INC                 20.60    +3.57% 188162
MANITOWOC CO            13.71    +3.08% 6801
AK STEEL HLDG              26.55    +3.03% 102386
FREDDIE MAC                1.49      +2.76% 86445
FANNIE MAE                  1.18      +2.61% 167349
NEWMONT MINING         50.90    +2.58% 68143
ALCOA INC                    17.45    +2.53% 572178
ALLEGHENY TECH           52.09    +2.5 %  8000

Today’s Trivia:  Given the cold snap, there is plenty of concern over Florida’s orange crop.  Florida is the #2 orange grower in the world…so who is #1?

Yesterday's Answer:  911 was started in 1968 in Alabama

Best Quotes:  As a few of you noted last Friday, the posted quote was from PIMCO’s Bill Gross, not Bill Miller.  Apologies for the typo. 

Atom Smasher Exposes Hole in Earth’s Defenses: Kevin Hassett
2010-01-11 02:00:59.0 GMT

Commentary by Kevin Hassett
     Jan. 11 (Bloomberg) -- The largest machine in the history of the world has gradually begun to operate in a small town outside Geneva. The policy questions that the endeavor raises are bigger than the machine.
     The Large Hadron Collider (LHC) is the most ambitious physics experiment ever. Buried in deep underground tunnels and covering a loop of about 16.5 miles, it consumes about the same amount of energy as a large city.
     The LHC will explore the most important unresolved questions in physics. In particular, it could provide evidence of the existence of the Higgs boson, a hypothesized particle that has become known as the God particle. If it is found to exist, it could complete our understanding of the basic laws of the universe.
     Accelerators such as the LHC work by bashing energetic beams of particles together, then studying the detritus. The high-energy LHC is like a telescope with an extra-powerful lens.
It will allow scientists to see things they have never seen before, because its energy is about seven times greater than that of the most powerful accelerator to date.
     That high energy has caused significant controversy. Some have warned that the collider’s energy could induce a catastrophic event. A brilliant review of the risks associated with the experiment by University of North Dakota law professor Eric Johnson has made me think twice about an experiment I have always favored.
     There are many things that theoretically could go terribly wrong, some of them quite exotic. The chief threat is that the LHC’s high-energy collisions might create a microscopic black hole that would, perhaps over a few years, swallow the Earth.

                          Raised Before

     As Johnson documents, the issue was raised in the late 1990s when some questioned whether a smaller experiment at the physics laboratory in Brookhaven, New York, might create a black hole -- an area of space with such a strong pull of gravity that not even light can escape. That experiment was allowed to proceed because a safety study concluded that the energy levels of the experiment were far too small to cause a hazard.
     Unfortunately, subsequent research by physicists at the University of California-Santa Barbara, Stanford University and Brown University showed that it was theoretically possible that much lower energy levels could create black holes. One paper even suggested that something with the energy level of the LHC might generate one black hole per second.
    With its initial safety argument under assault, the physics community turned to an alternative. Even if a black hole were created, this new argument went, it would be tiny and would evaporate harmlessly. This was consistent with a theory of physicist Stephen Hawking. The evaporation argument was widely viewed as sound, and the LHC continued on track.

                      Assurance Evaporates

     But later, some top scholars began to publish papers questioning the evaporation hypothesis. The issue is far from decided.
     So the physics community retreated to what originally seemed like a terrific point: High-energy cosmic rays constantly bombard Earth and collide with particles in the atmosphere. If those collisions were going to create a black hole, then Earth would already be gone.
     It turns out that this argument, too, is a loser.
     When a cosmic ray rocketing toward Earth collides with a particle, the result of the collision would most likely be blasted into space. That means a black hole created by such a collision might be well beyond our galaxy before it is large enough to harm anything. In the LHC, by contrast, the result of collisions between two particle beams might stay put and cause significant trouble.
     Thus, the safety arguments that have justified turning on the LHC are each a little less decisive than was originally believed. Oxford University’s Toby Ord, a philosopher by training, adds one last concern. It may be that the models that we use to make predictions about the possibility of catastrophe are themselves flawed.

                          One in 1,000

     Adjusting for this possibility, Ord estimates that the odds of the LHC producing a disaster are between one in 1,000 and one in 1 million.
     Whatever the likely benefits from this experiment, it is impossible that they would be significant enough to justify accepting a cost that includes a real risk of the Earth’s destruction. If Ord’s numbers are correct, and they may not be, then the LHC is the biggest policy error of all time.
     As science progresses, the possibility climbs ever higher that the fondest dreams of scientists might entail risks of planetary destruction -- whether it’s the next physics experiment at even-higher energy or a genetic experiment that might unleash the perfect disease. The best science explores things far from our understanding. How can we know that things we do not understand will not kill us?

                         Worldwide Void

     Right now, the world’s governments have no mechanism to coordinate rational thinking about these risks. If the U.S.
wanted to stop the LHC experiment, it would have no recourse short of military action.
     Early in his term, President George W. Bush appointed a bioethics panel to consider the weighty questions that scientific advances presented. A successor panel named by President Barack Obama has a lamentably narrow focus. It is urgent that a panel be assembled to explore policy in the presence of catastrophic scientific risks.
     The alternative is to continue to bet the future of our planet on a process that keeps producing safety assurances that are subsequently refuted.

--BBERG News

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