Friday, April 30, 2010

Morning Note...

Futures ~10bps lower this morning on in-line economic data in the U.S. and tightening default spreads in Europe ahead of the long weekend and Monday’s European bank holiday. WSJ headlines regarding a criminal probe into Goldman Sachs’ trading activities (see more on this below) are weighing slightly on markets, along with weaker-than-expected earnings from banking giant Barclay’s (BCS; -7%) overseas.  Regarding Greece, credit spreads have tightened considerably as expectations that an official bailout deal will be struck today or over the weekend mount.  However, beware Spain…note this headline from Bloomberg this morning:  “Spanish Unemployment Tops 20%, Hurting Deficit Fight.”  In Asia, Bank of Japan left rates unchanged at 0.1%. 

In economic news, U.S. Q1 GDP came in at +3.2% vs. the +3.3% expectation.  Q1 Personal Consumption (always key when 70% of the economy is consumer-driven) was +3.6% vs. the +3.3% expectation.  In earnings news, McAfee is 11% lower premarket on earnings.  Monster Worldwide is also lower (lowered guidance slightly) despite a beat.  Nasdaq reported 3c light.  Looking ahead, U of Mich Consumer Confidence is due at 10am today, and the Chicago Purchasing Manager’s Index data is due at 9:45am.  In other news, Pennsylvania state capital may file for bankruptcy sooner than later.  Is this the “canary in the coal mine” (see “sovereign debt, Greece” or “Stearns, Bear” if you are tracking all this at home) for U.S. state and municipal financial woes?  Further, the Gulf of Mexico oil spill (by BP) continues to draw attention and negative headlines.  Unfortunately the whole thing appears on track to become the largest man-made ecological disaster ever.

Interesting thoughts on financial reform from CSFB’s Mary Whalen yesterday…this is pretty strong language:

The financial reform bill has the potential to be disastrous because if the agenda to eliminate private speculation in commodity markets prevails, then liquidation will be violent given the recent flows of money towards these markets. Maybe it is the government's final answer to deficit worries: if you force people out of commodities, they will have to support equities and bonds, and given the risks to growth and earnings priced in by equity markets, it means the US Treasury no longer has to worry about demand at auctions or a weak currency generating commodity inflation. It would be the final insult and nail in the coffin for what is left of our capitalist system. It was brought to my attention that national security concerns have been supporting this agenda, and that is a point well worth keeping in mind. It would certainly buy the US 10 more years of additional time to reach energy independence. Be very cautious though, bank stocks would take a strong hit, and so would energy companies.

Regarding Greece, Bloomberg posted the following table yesterday, which offers some granularity in terms of exposure to potential default (formatting a mess, sorry):

April 29 (Bloomberg) -- The following table shows European financial institutions’ stated exposure to Greece and Portugal. Standard & Poor’s cut its rating on Greek debt three levels to BB+, or junk, and lowered Portugal’s rating two steps to A-on April 27. Spain’s rating was lowered one step to AA on April 28. The figures were provided to Bloomberg News in interviews and e-mails, or culled from company reports and presentations, and are subject to change. The list is in alphabetical order.

COMPANY                       EXPOSURE TO:

                                                GREECE                         PORTUGAL

Aegon               EU92 million                   EU58 million

Allianz               EU900 million                 EU500 million
                        net                    sovereign                       net sovereign

Aviva                 GBP500 million               part of GBP1.2 billion
                                                                                    exposure to Greece,
                                                                                    Spain, Portugal

Axa                   EU600 million                 EU900 million

Barclays            no comment                    no comment

BBVA                “immaterial”                   “immaterial”

BNP Paribas       “negligible” vs
                                                Greek banks;                 “very limited” loans
                                                                                    to Greek companies

CNP Assurances      EU113 million            EU154 million
                                                            sovereign             sovereign

Commerzbank         EU3.1 billion             no comment

Credit Agricole     owns Emporiki Bank
                                                            of Greece.
                                                                                     EU850 million

Credit Suisse       “not material”               “not material”

Deutsche Bank       “not much” direct        no comment

Deutsche Postbank   EU1.3 billion              no comment
Dexia               no comment                  no comment

Fortis              EU4.1 billion                     EU3.1 billion
                                                sovereign                      sovereign

Hypo Real Estate    EU7.9 billion                EU1.7 billion
                                                sovereign; EU2               sovereign; EU3.7
                                                billion non-                     billion non-sovereign

ING                   EU3 billion                     EU1.9 billion
                                                 sovereign                     sovereign

Intesa              EU1 billion                       part of EU1.5 billion
                                                sovereign                      exposure to Portugal,
                                                                                     Ireland, Greece, Spain

KBC                 about EU1.2 billion           about EU600 million
                                                sovereign                      sovereign

Lloyds              “not material”                   “not material”

Monte Paschi        EU20 million

Munich Re           EU2.1 billion                 EU800 million
                                                 sovereign                     sovereign

Natixis             “negligible”                       “insignificant”

Nordea              no comment                  no comment

Prudential          no exposure                   no exposure

RBS                 < GBP1 billion                  GBP1.4 billion

SEB                 “very limited”                    no comment

Societe Generale    owns 54% of Geniki    no comment

Standard Chartered  no exposure           no exposure

Swiss Life          SF335 million                 SF170 million

Swiss Re            SF482 million

UBS                 “not material”                  no comment

UniCredit           “not material”                no comment

Zurich Financial    < $520 million             < $520 million
                        sovereign                                  sovereign

Goldman Sachs (GS; -3.5%) is trending down this morning on the aforementioned “criminal probe into trading” as reported by the WSJ.  Not sure about this one.  First of all, if government wanted to, I am sure it could find plenty of gray areas – legally and ethically – in the business of institutional trading.  Second, from my objective, outsider’s viewpoint, this just strikes me as silly.  If you indict Goldman for trading practices (which have always seemed above-board to me, but what do I know…) then you basically need to indict every financial institution with a trading operation, and you’d probably be indicting “free markets” and capitalism right along with them.  Recently, I mentioned how the GS testimony before the Senate reminded me of A Few Good Men…and someone went so far as to script a pretty funny parody that I posted here yesterday.  Today, however, I will do it myself… Who remembers Animal House and Otter’s speech defending the Deltas before the Greek council ( 

Otter/Blankfein/Viniar: The issue here is not whether we broke a few rules, or took a few liberties with our [trading counterparties]; we did. (winks) 

But you can't hold a whole [firm] responsible for the behavior of a few sick, perverted [traders]. For if you do, then shouldn't we blame the whole [financial] system?

And if the whole [financial] system is guilty, then isn't this an indictment of our [American business practices] in general?

(The other [banks] cheer; Otter/Blankfein/Viniar addresses the [Subcommittee Chair] directly)

I put it to you, [Carl Levin]! Isn't this an indictment of our entire American society?

(The [other banks] cheer again) 

Well, you can do what you want to us, but we're not going to sit here and listen to you bad-mouth the United States of America!  Gentlemen!

(Otter/Blankfein/Viniar packs his briefcase and leaves the room; the other banks follow, humming "The Star-Spangled Banner")

AIXG cut at Canaccord.  APKT beats by 6c.  ATHN misses by 7c.  BEXP beats by 3c.  BOOM beats by 3c.  CSTR beats by 8c.  CSUN beats by 8c.  CTV beats by 1c.  DLB beats by 12c.  JRCC beats by 42c.  KFN higher on earnings.  MFE misses by 3c.  MSTR misses by 45c.  MWW beats by 2c but guides slightly lower.  NETL beats by 3c.  PWER beats by 3c.  RMD beats by 6c.  SWIR beats by 2c.  SWKS beats by 1c.  SWN beats by 3c.  THOR beats by 6c.  VLCM beats by 12c.  VPRT beats by 4c.  VSEA beats by 9c.  WFR misses by 6c.

Asia higher overnight.  Europe slightly lower.  USD -40bps.  Gold +80bps.  Oil +85bps.    

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
MEMC ELEC MATER        14.75    -7.47%  43730
DR HORTON INC             15.20    +6.74% 225544
FISERV INC                    51.25    -6.29%  14920
NEWELL RUBBERMAI       18.00    +6.19% 1445
GOLDMAN SACHS GP      152.00  -5.14%  1697843
QLOGIC CORP                20.50    -5.0 %  8600
APARTMENT INVEST      22.00    -4.89%  100
AVON PRODUCTS           31.09    -4.84%  4500
SOUTHWESTRN ENGY     38.70    -4.16%  14800
TRANSOCEAN LTD          75.85    -3.39%  361995
HALLIBURTON CO           30.65    -3.01%  133807
EL PASO CORP               12.45    +2.98% 2544
LIZ CLAIBORNE               9.43      +2.72% 100
SYMANTEC CORP           16.70    -2.54%  100
TELLABS INC                  9.17      -2.45%  6655
MYLAN INC                    21.25    -2.39%  760
KLA-TENCOR CORP         35.50    +2.33% 3140
EXPEDIA INC                  25.00    +2.0 %  42026

Today’s Trivia:  What U.S. state boasts the largest seafood industry in America?  Which is 2nd?
Yesterday's Answer:  Acetylsalicylic acid is aspirin…ascorbic acid is vitamin C…ethylene glycol is antifreeze…

Best Quotes:  Here’s some Friday fun…this made the rounds “street-wide” yesterday, and is actually a re-write of something posted on the blog dopeycowboy about 6 months ago (let’s give credit where credit is due)… I have to say, the cowboy – as always – is spot on with much of this… definitely food for thought as Goldman Sachs is trotted out in front of the proverbial firing squad.  Let this serve as a warning for those folks on Main Street clamoring for the death of Wall Street:

“We are Wall Street. It's our job to make money. Whether it's a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn't matter. We would trade baseball cards if it were profitable. I didn't hear America complaining when the market was roaring to 14,000 and everyone's 401k doubled every 3 years. Just like gambling, its not a problem until you lose. I've never heard of anyone going to Gamblers Anonymous because they won too much in Vegas.

Well now the market crapped out, & even though it has come back somewhat, the government and the average Joes are still looking for a scapegoat. God knows there has to be one for everything. Well, here we are.

Go ahead and continue to take us down, but you're only going to hurt yourselves. What's going to happen when we can't find jobs on the Street anymore? Guess what: We're going to take yours. We get up at 5am & work till 10pm or later. We're used to not getting up to pee when we have a position. We don't take an hour or more for a lunch break. We don't demand a union. We don't retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we'll eat that.

For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We're going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I'll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much.

So now that we're going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we're going to stop buying the new 80k car, we aren't going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We're going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.

The difference is, you lived off of it, we rejoiced in it. The Obama administration and the Democratic National Committee might get their way and knock us off the top of the pyramid, but it's really going to hurt like hell for them when our fat a**es land directly on the middle class of America and knock them to the bottom.

We aren't dinosaurs. We are smarter and more vicious than that, and we are going to survive. The question is, now that Obama & his administration are making Joe Mainstreet our food supply…will he? and will they?”

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