Monday, March 1, 2010

Morning Note...

Futures +30bps this “first day of the new month” morning on increased M&A activity, higher than expected January personal spending by U.S. consumers, and overseas strength.  Asia was higher overnight as markets there caught up with the upward U.S. GDP revision from Friday.  Additionally, China’s PMI was weaker than expected (at 52 vs. 55) but this was excused by the week-long Chinese New Year holiday mid-February.  Europe is up nearly 1% as the GBP rebounds off the session lows and hope for a Greek bailout abounds.  Greek PM Papandreou is due in Germany on March 5th for a “meet and greet.”  Copper is higher on the back of supply issues surrounding the Chilean earthquake.  Here in the U.S., economic data was favorable, as Personal Spending rose +0.5% from December’s +0.3%, beating the +0.4% expectation.  PCE data was largely in-line, but Personal Income was +0.1% vs. the +0.4% expectation.  In corporate news, Prudential Plc – Britain’s largest insurer – agreed to buy AIG’s Asian life insurance unit for $35.5 billion in cash and stock.   Merck KGaA agrees to buy MIL for $6B, or $107/share in cash, topping TMO’s bid.  Further, Astellas Pharma will pay $52/share in cash for OSIP and MSCI will buy RiskMetrics for $21.75 in cash and stock.  European financials (RBS, LYG, IRE, AIB, BCS) are lower on HBC earnings. 

See attached for the Berkshire Hathaway Annual Letter – Buffet was on CNBC this morning and said our residential real estate slump will end in 2011.  Looking ahead, the looming Greek bond offering is expected some time this week, and the China National People’s Congress kicks off March 5th, and will address monetary policy issues vis-à-vis inflation.  Further, we’ll get official unemployment data here in the U.S. on Friday.  Given the large amount of uncertainty – especially politically – on both sides of the Atlantic, it will be interesting to see if investor conviction upticks.  Whither U.S. healthcare reform?  How about U.S. financial markets regulation?  Greek default?  Spanish default?  A GBP crisis?  State and municipal default here at home?  By all counts – IPOs, Volume data, and VIX readings – the market has been lackluster as we await the next catalyst…or, as we await some resolution among the “known unknowns.”  Looking back at February, the major indices were up 3-4%, but volumes were down ~7% from January. 

Good “quick and dirty” summary from UBS’ Art Cashin this morning:  First trading day of the month has a mild bullish bias (new money in IRA’s, pensions, etc.). Overnight, there are, yet again, rumors of a Greek rescue package. That has boosted the Euro and softened the dollar. The Pavlovian response is firmer prices for stock futures, oil, and gold. If there is a deal, and details follow, stocks could benefit further. If the deal disappears, stocks could suffer.

ANF upgrade at COWN.  BofAMLCO ups WLK. BCAP ups NSC.  PIPR ups PNR, TSCO.  UBSS ups WFMI.  JEFF cuts BAS.  JPHQ cuts TASR.  PIPR cuts TTEK.  WEFA cuts GCA, EPIQ.  WSJ “Heard on the Street” positive comments on AAPL.  ESV added Conviction Buy at GSCO.  HBC trades off on earnings.  Barron’s cautious on OSK.  RAJA ups TTI. 

Asia higher overnight.  Europe +1% on average.  USD +70bps.  Oil +75bps.  Gold flat. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
DILLARDS INC-A             19.95    +18.26%           5792
AMERICAN INTERNA       28.10    +13.44%           1421020
MILLIPORE CORP            104.95  +11.16%           1806998
EL PASO CORP               10.99    +4.97%             171970
PALL CORP                    41.35    +4.76%             1600
DYNEGY INC-A                1.55      +3.33%             1300
CERVEZAS-ADR              37.50    -3.05%              1300
ENSCO INTL-ADR           45.50    +3.01%             6668

Today’s Trivia:  Today marks the 200th birthday of what Polish composer?

Yesterday's Answer:   Goosebumps served the purpose of “puffing out” the hair of primates in times of fear or cold.  Our skin still reacts to similar stimuli today, minus the hair. 

Best Quotes:  “The following is quote from Berkshires letter to shareholders this year.  It aptly highlights if you wait to invest in a “perfect” environment you are likely going to pay bad prices.  “We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.”  --BTIG’s O’Rourke, quoting the Berkshire letter

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