Thursday, March 25, 2010

Morning Note...

Futures +45bps this morning as Europe rebounds on news that Germany will back the IMF Greek rescue and word that the ECB will extend emergency collateral rules beyond 2010.  Stocks are also higher in Dubai as their government offers troubled Dubai World a $9.5 billion backstop of funds.  The net effect is a calming of international sovereign debt jitters and a rebound in the euro currency.   Here at home, Initial Jobless claims for the week ending March 20th were slightly lighter than expectations, at 442k vs. 450k/e.  Continuing Claims are 4.648M vs. the 4.562M estimate.  In corporate news, BBY is trading higher on better than expected earnings, indicating strength in US consumer spending.  Further, QCOM boosted Q2 estimates and the Treasury announced a plan to sell its 27% stake in Citi.  Regarding Greece, Germany’s Angela Merkel is set to announce her backing of the IMF plan to aid Greece at the EU leaders summit in Brussels.  At the same summit, ECB President Jean-Claude Trichet announced an extension of the loose collateral rules aimed at stabilizing bank liquidity in times of financial crisis.  In Dubai, the government there will support Dubai World’s debt restructuring by doubling its pledged amount to $20 billion over all.  Note that Tim Geithner met with a senior Chinese central banker in Washington.  Geithner said he believed China would allow its currency to appreciate over time and that while the U.S. “can't force them to make that change…I think we can work through the tough things we have together.”  Bernanke speaks at 10am today on the Fed’s “exit strategy.”  Recall that his testimony was postponed in the February snowstorms, and his comments were released then and nothing new is expected. 

Interesting mea culpa out of Goldman Sachs today regarding their “long euro” call.  Here’s something you don’t see every day:

March 25 (Bloomberg) -- Goldman Sachs Group Inc. exited a bet the euro would climb against the dollar after the trade lost 2.8 percent amid concern the European Union is unable to agree on an aid plan for Greece, undermining the common currency. “We have clearly underestimated the impact on the euro from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends,” five analysts including Thomas Stolper, London-based economist at Goldman Sachs, wrote in an e-mail to Bloomberg today. “These political headwinds currently matter far more for the euro than the cyclical factors.”

Taking a step back from the day-to-day, it would seem recent market resilience/strength is signaling an “all clear” of sorts.  In short, is the market telling us that “all is well” and that it’s time to return to the 2006 & 2007 days of the “130-30” strategy?  Is it just that easy again?  Hmm.  Somehow that doesn’t pass the sniff test to me.  But for the moment, it is what it is.  As we all know, the market can be “wrong” for a helluva lot longer than the individual investor (or fund) can stay solvent…  Just for fun, here’s an article from one year ago…amazing how things have changed so quickly:

In a risk-averse environment, 130/30 has lost its cool factor, with investors shying away from the strategy after getting clobbered in the market downturn. Top-ranked JPMorgan Asset Management of New York saw its assets under management in 130/30 plunge 21.8%, to $7.77 billion as of March 31, compared with six months earlier, according to sister publication Pensions & Investments' semiannual survey. Barclays Global Investors of San Francisco, whose 130/30 assets fell 29.3% to $7.04 billion in the same period, came in second in the rankings. Virtually all of the 21 managers who responded to the survey saw double-digit asset declines, proving that even the strongest players were no match for the markets. The in-creased risk — a result of leverage built into the strategies — also made them vulnerable. Total assets under management in 130/30 or similar strategies, also known as active-extension strategies, collectively plummeted 32.9% for the managers surveyed, to $31.56 billion from $47.02 billion in the six-month period. …Scott Bondurant, global head of long/short investments for UBS Global Asset Management in Chicago, said that even though 130/30 strategies clearly face head winds, “we think there is a lot of misperception” about the strategy. “Some people don't realize or appreciate that the strategy is 100% net long in up markets and down markets, so it's designed to outperform the benchmark, but not provide protection in down markets,” he said. (May 2009)

WSJ positive article about DT commitment to growing T-Mobile USA.  AP reports that PCS will beat Sprint on 4G roll-out.  GSCO ups GGB.  Janney ups PGR.  JPHQ positive on US lodging and ups MAR, SHO.  BERN cuts BRCD.  CITI cuts FE, MIR, NRG, PEG, PPL, RRI.  CSFB cuts AXL.  GSCO cuts SID, TX.  JPHQ cuts CHH, GENZ.  UBSS cuts RAH.  Canaccord speculates DRWI will supply equip to VZ.  QCOM boosts Q2 forecast.  MSCO initiates solar sector with FSLR as top pick. 

Asia mixed overnight.  Europe over 1% higher.  USD -37bps.  Oil +85bps.  Gold +50bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
NEW YORK TIMES-A       10.21    -9.0 %  300
BEST BUY CO INC           43.95    +6.73% 2130187
FIRST HORIZON NA        13.205  -6.48%  100
AMERISOURCEBERGE      29.98    +4.39% 300
EL PASO CORP               11.20    +3.32% 23730
EBAY INC                       27.75    +3.01% 64786
MBIA INC                       6.58      +2.81% 69428
GENZYME CORP              53.90    -2.58%  46814
CUMMINS INC                63.34    +2.48% 400
MGIC INVT CORP            9.73      +2.42% 7580
CITIGROUP INC              4.25      +2.41% 46935746
CONS EDISON INC          44.89    +2.40% 200
PROGRESSIVE CORP       18.91    +2.27% 154
INTL GAME TECH            18.20    +2.25% 1000
WEATHERFORD INTL      16.34    +2.19% 12020
KEYCORP                       8.07      +2.15% 9818
TENET HEALTHCARE       6.09      +2.01% 27677

Today’s Trivia:  Before 1972, Sri Lanka was known by what name?
                                                                                                                                                                             
Yesterday's Answer:   China was the first country to issue a paper currency. 

Best Quotes:   Good Morning - "If you put your effort and concentration into playing to your potential, to be the best that you can be, I don't care what the scoreboard says at the end of the game, in my book we're gonna be winners". - Coach Norman Dale.   The Madness is back tonight.  U.S. Treasury said to have preset plan to Sell Citi shares.   We don't expect to see this implemented till after they report earning on April 19th.   CAT will take a $100mn charge to earnings after the health-care overhaul was signed into law this week. Some estimates place total charges corporate profits as high as $14bn.    Jobless claims today.  If the market shakes off a bad number, as it did yesterday with the housing data, there is no stopping it.  At 10am, we'll hear from Chairman Bernanke, who testifies before the House Financial Services Committee, on the Fed's exit strategy.   More chatter again about China and the yuan, I think they are going to do what they want, despite the US efforts.   I am still going with the lack of volume being a lack of sell volume.   The shorts are out of the tape.   Simple supply and demand.   I think yesterdays trade was a great example of how resisilant this tape is.  After Tuesdays rip into the bell, yesterdays hold was respectable.   Keep buying the dip.   Have a great day.  –BofAMLCO trader note

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