Monday, January 25, 2010

Morning Note...

Futures 75bps higher this morning as markets took the weekend to digest last week’s -5% three-day plunge.  Overseas, markets are lower in Europe but have been buoyed by a better-than-expected Greek treasury auction (2x oversubscribed; books close at 9:30am EST) and better-than-expected PHG (Philips Electronics) earnings.  [It is worth noting, however, that while demand for Greek debt is surprising many, some desks indicate this demand is not in the form of long-term holders, but rather from those looking to hedge out their long CDS exposures.] Asian markets were weaker overnight.  This morning’s WSJ Heard on the Street column is bearish on COF (Capital One) after recent weakness and forward guidance given loan growth and marketing expense issues ahead.  Also in the WSJ; speculation that many hedge funds bought by banks over the past few years will now be able to buy themselves back at cheaper prices, taking advantage of the Obama’s Administration’s new regulations forcing banks to become sellers. 

Busy week ahead, highlighted by heavy tech earnings (AAPL/TXN/VMW tonight,  ALTR/EMC/VZ/YHOO/GLW Tuesday, LSI/QCOM/SAP/SYMC Wednesday, PMCS/SNDK/MOT/NOK/T/AMZN/JNPR Thursday), Obama’s State of the Union address (Wednesday), Geithner testimony before Congress on the AIG bailout, the FOMC decision (Wednesday), US housing data (Existing Home Sales today at 10am, Case/Schiller Index tomorrow), Initial Jobless Claims (Thursday), US Q4 GDP (Friday; +4.6% is expected), and the Bernanke re-confirmation.  Recall that Bernanke has 6 days left in his term, and the vote continues to be postponed as politically posturing remains.  If a vote is not completed by 1/31, Bernanke will be forced to step down.  Further, chatter surrounding new short-selling regulations continues. 

In general, markets hate “uncertainty,” and that theme continues… Hopefully the week ahead will provide come clarity, either fundamentally or politically….  Goldman’s Global Economist Jim O’Neill has some informal “state of the world” thoughts out this morning:

Washington and US financial conditions…

Which leaves me to this topic. If the "shock " of the UK supertax wasn’t enough, now we have out of the blue ,Tall Paul Volcker's ideas suddenly appearing as US "policy" on banks. There are an enormous number of policy issues raised by this development, such as ; will the proposals ever come to pass, should they be seen in the context of the Massachusetts development, who is running economic and financial policy, etc and plenty more, that I don’t think it is appropriate for me to write about , at least in this kind of format. But the core issue to me, is as follows;

a/ this is a second major, and much bigger "anti current practises" surprise to the financial system since mid December, and at least for me, both have been quite a surprise, and completely at odds with the co-ordinated G20 flavour of much of late 2008 through most of 2009. How many more, such surprises, are coming?

b/ much more importantly than being surprised, what is this going to do to financial conditions? One would have thought policymakers would be eager to avoid an inadvertent tightening of financial conditions, given what happened in 2008 and the whole parallel with the initial recovery from 1929 before you know what………but the style in which both the UK, and now the US policies have appeared suggest that this is not at the forefront of thinking. I guess this latest development at least adds to the probability of our Fed Funds forecast being right, but ….

I have been thinking since the Summer , with some confidence that the upside risks to a US recovery were likely to keep re-appearing, but given both the political and policy events, and with this fresh major degree of uncertainty introduced to the financial markets, upside US risks are increasingly going to relate purely to one area, exports…

Last Friday, I had an interesting debate with an extremely well known bear , for the amusement of some hedge fund clients. If it would have been this morning, I would have found it much tougher to battle him………

AAPL’s tablet launch is expected Thursday.  WMT announced 10,000 job cuts at Sam’s Club.  Barron’s cautious on the airline sector; also cautious on SHLD.  BARD ups ACXM.  FT reports BCS will defer bonuses.  Cramer positive CCOI.  Barron’s positive FRX.  UBSS ups GD.  DBAB ups ICE.  TWPT ups IM.  Barron’s positive INTC.  WEFA ups KSP, ROSE.  CSFB ups RRI.  BofAMLCO ups SAP.  FBRC ups SLB, STI.   Barron’s positive SLE.  BBNT ups SOA.  HSBC ups TIF.  CITI ups TRI.  FBRC cuts RF.  GSCO cuts IGT.  UBSS cuts TSS. 

Asia lower overnight.  Europe slightly lower.  Oil -20bps.   Gold +75bps.  USD flat. 

Brightpoint News: 

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

S&P 500 PreMarket (last/% change prior close/volume): 
ALLERGAN INC               53.41    -9.03%  2544
GANNETT CO                 16.49    +6.94% 8796
COMPUWARE CORP        8.50      +6.12% 375
SARA LEE CORP             12.30    +5.13% 7400
KB HOME                       15.04    +4.81% 8998
AK STEEL HLDG              21.09    +4.46% 121176
MANITOWOC CO            11.97    +3.73% 6656
EXPEDIA INC                  21.00    -3.54%  100
INTL PAPER CO              25.25    +3.36% 9654
DISCOVER FINANCI        13.89    +3.19% 23177
EL PASO CORP               11.19    +3.04% 200

Today’s Trivia:  Bloomberg news story this morning highlights the suicide rate in France, which is actually – according to recent measures - #3 among the G8 nations (France, US, UK, Russia, Germany, Japan, Italy, Canada).  Which nations rank #1 and #2?

Yesterday's Answer:   John Pemberton created the first vat of Coca Cola in Atlanta, Georgia in 1886.

Best Quotes:   “Looks like Bernanke will keep his job, although why in the world the guy would want it is beyond me.   I lose more, and more respect for the political world every day.  Obama gives the State of the Union tomorrow night, I would expect it to be full of bluster.  Futures bouncing form the biggest three day decline since March.  Apple earnings out tonight.   We've seen nothing but sellers into the number, expect to hear VZ added to the tablet, and the IPOD providers.   I think banks can recover post the State of the Union, buy the dip.”  --BofAMLCO trader 

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