Wednesday, January 20, 2010

Morning Note...

Futures are -75bps this morning as markets digest earnings from IBM (last night; -2%), MS (+1%), BAC (+1%), and WFC (+2.5%).  Leather goods maker Coach is also -6% on weaker than expected sales in North America.  Restaurateur EAT is up 6.5% on better than expected quarterly results.  KFT had its credit rating cut after agreeing to buy Cadbury for $19.5B.  Financials USB (+1.5%), STT (+2.5%), and BK (+2%) are also trading higher on earnings results.  In economic news, Housing Starts for December were weaker than expected, but Building Permits jumped.  The Producer Price Index (PPI) for December was +0.2% month-over-month (vs. 0.0% expected) and +4.4% year-over-year (vs. +4.5% expected).  Overseas, China may raise bank reserve requirements yet again, and Greece’s default risk continues to rattle investors in Europe.  Asia was mostly lower overnight (Shanghai -3%) and Europe is down 1% across the board.  Additionally, the euro has fallen to the lowest level in 5 months against the USD on concerns that Greece’s finances will drag on the Euro-region’s economic recovery.  Note that EBAY, SBUX, and XLNX – among others – report after the bell tonight. 

While earnings this morning – for the most part – look better than expected on the aggregate, markets have that “heavy” or “sell the good news” feeling… The big news today is political, as unknown Republican challenger Scott Brown won Senator Ted Kennedy’s vacant seat.  Normally this would represent a subtle shift in a long-time Democratic state.  But considering that Brown ran exclusively on a platform of rejecting ObamaCare, it becomes a larger public indictment of President Obama’s platform of “change” - especially damning in a state he carried by 26 percentage points in the Presidential election.  Further, this event would not be as monumental in the “less-partisan” times past.  After all, it doesn’t give the Republicans a majority, or add to their strength in that sense.  It simply blocks a Democratic “supermajority,” meaning they no longer have the iron-clad 60 votes needed to block filibuster, or stall attempts, in the Senate.  And given today’s bi-partisanship, wherein members of Congress look to block legislation not on its true merit, but rather because it simply came from “the other side of the aisle,” this “non-supermajority” result looms larger than it probably has at any other time in our history.  ResearchEdge summed things up quite nicely this morning:

It's fitting that "this change of guard" is happening in Massachusetts, a state that has played a big role in American history:

(1)   Plymouth was the second permanent English settlement in North America.
(2)   During the eighteenth century, Boston became known as the "Cradle of Liberty" for the agitation there that led to the American Revolution and the independence of the United States from Great Britain.
(3)   It was also a center of the temperance movement and abolitionist activity before the     American Civil War.
(4)   In 2004, Massachusetts became the first U.S. state to legally recognize same-sex marriage.
(5)   In 2010, Massachusetts has become Obama's nightmare.

The S&P 500 has rallied 69.9% since March 9, 2009 and the average American is fed up!  In light of where we may have been heading a year ago and where we are today, this does not make sense.  Or does it?  After the close, the weekly ABC consumer confidence reading came in at -49 versus -47 last week and -50 a year ago.  Consumer sentiment is virtually unchanged from a year ago as most consumers are concerned about their personal finances because Washington is not.  The nasty consumer confidence reading, combined with Scott Brown winning a U.S. Senate seat in Massachusetts, helps put things into perspective - Americans are fed up with the "Piggy Banker Spread" and the fact that Obama does not represent "change" in Washington.

BRK/A and BNI settle claims that the $26B acquisition undervalued the company.  BHP said Q2 iron ore production rose 11%.  BA discloses orders for 71 planes from Japan Air, who just announced bankruptcy.  CREE higher on earnings.  CSX beat estimates by 1c.  DOW initiated Overweight at MSCO.  PFE announces plans to be more aggressive in China.  RMBS +15% after settlement with Samsung.  TGT investor day tomorrow.  BCAP ups ARE, CPT, ESS, NXY, SWIR.  JEFF ups CBS.  BofAMLCO cuts AAP.  BCAP cuts AMB, AVB, ECA, REG, PPS.  CSFB cuts KOF.  GSCO cuts PXD, TSCO.  JEFF cuts CFL, HXL.  JPHQ cuts BIG. 

USD +95bps.  Bonds are bid up, thus yields are lower.  Oil -2%.  Gold -140bps. 

Brightpoint News:  

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

S&P 500 PreMarket (last/% change prior close/volume): 
COACH INC                    35.20    -6.01%  536472
CSX CORP                     48.03    -4.91%  25422
MARSHALL &ILSLEY        6.70      -4.01%  38881
COVIDIEN PLC                51.35    +3.84% 33416
CONAGRA FOODS           24.27    +3.14% 500
MICRON TECH                9.97      -3.02%  113875
PEABODY ENERGY           48.10    -2.93%  2202
KRAFT FOODS INC         28.60    -2.75%  658233
SCHWAB (CHARLES)       18.76    -2.75%  200204
STATE ST CORP            44.35    +2.66% 39596
BIG LOTS INC                 30.19    -2.58%  200

Today’s Trivia:  According to Stanford professor David Kennedy, what two nations sharing a border have the largest wealth disparity, as measured by wage differential? 

Yesterday's Answer:   Borneo is the world’s third largest island.   

Best Quotes:   “In many ways the campaign in Massachusetts became a referendum not only on health care reform but also on the openness and integrity of our government process. It is vital that we restore the respect of the American people in our system of government and in our leaders. To that end, I believe it would only be fair and prudent that we suspend further votes on health care legislation until Senator-elect Brown is seated.” 

--statement released from Sen. Jim Webb, Democrat-Virginia, this morning. 

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