Tuesday, March 16, 2010

Morning Note...

Futures are slightly higher this morning (+25bps) ahead of this afternoon’s FOMC announcement.  In economic news, Import Prices were -0.3% for February (vs. -0.2% expected), which is down from the revised +1.3% for January.  Year-over-year, Import Prices came in at +11.2% vs. the +11.3% estimate.  Housing Starts were largely in-line, at 575k vs. the 570k expectation, but lower than the prior 611k for January.  Building Permits for February were also in-line, at 612k vs. the 601k estimate.  Month-over-month, Building Permits are down only 1.6%, which is favorable versus the -3.4% estimate and January’s -4.7%.  In corporate news, the WSJ reports that Wal-Mart will double the locations (to 1,500) that offer financial services.  Additionally, the WSJ reports that MSFT may be the ultimate beneficiary if GOOG retracts from China.  Goldman Sachs made a series of ratings changes in the healthcare sector – see quote section below for the details.  In overseas news, Greece’s lifeline appears to be taking shape out of a two-day European finance ministers meeting in Brussels:

European finance ministers laid the groundwork for a financial lifeline to debt-stricken Greece, breaking a taboo against aid to cash-strapped governments in order to avert a crisis for the euro. Officials from the 16 countries using the currency worked out a strategy for emergency loans in case Greece’s plan for 4.8 billion euros ($6.6 billion) in tax increases and wage cuts fails to stave off fiscal disaster. “We clarified the technical arrangements that would enable us to take coordinated action which could be swiftly put into place in the event it is necessary,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday after leading a meeting of euro-area finance officials in Brussels. (BBERG News)

In political news, the Senate’s HealthCare bill is expected for vote before the House some time this week.  Further, the WSJ’s “Heard on the Street” column – along with most political pundits – is lukewarm on Senator Dodd’s Financial Regulation proposal.  Most agree that it is watered-down legislation that portends very little impact.  According to Bloomberg news, “Senate Banking Committee Chairman Christopher Dodd’s plan for the biggest Wall Street regulatory overhaul since the 1930s drops provisions he sought in November and dilutes others as he seeks bipartisan support.”  BTIG’s Mike O’Rourke made an interesting comment – thoroughly glimpsing the forest through the trees – in his note last night: 

Today was Chris Dodd’s big day.  The Connecticut Senator unveiled the ‘‘Restoring American Financial Stability Act of 2010’’.  The casual observer has to wonder whether Dodd’s literal solo appearance at the podium is any indication of the likely success of this measure, at least in its current form.  One thing legislators are not known for is being camera shy, so it was interesting to see a politically popular piece of legislation unveiled by Dodd alone. 

Volumes remain light overall – the NASDAQ was 20% below the 50-day average yesterday, and the NYSE was 10% lower.  Note that Tim Geithner will testify before the House budget committee starting at 10am today, and both Bernanke and Volcker will testify there tomorrow.  A large part of my goal here is to provide access to commentary from “the street,” rather than prating on myself.  In that spirit, I think this paragraph from the Barclay’s desk sums things up nicely this morning:

Fed day is always boring, expect light volumes.  The focus of today’s 2:15pm release will be any change in language from current conditions "warrant exceptionally low levels of federal funds rate for an extended period."  We have a glimmer of hope for excitement at 8:30am with Starts & Permits but I doubt it.  Asian markets were down 28 bps overnight but somehow European equities rallied 80 bps on an emergency European loan packed easing concerns around a potential Greece default.  I thought we were over that already?

Regarding the specifics of the FOMC’s wording, KBWI had the following commentary this morning:

Quiet research note today ahead of the Fed decision…..we are in the camp that the FED will remove some of its accommodative language in the release as we believe it is likely that it will remove or modify the "extended period" language from its post-meeting statement which, we think, would be another step in removing the extraordinary measures put in place for the financial crisis-----If correct this will obviously be a fairly negative data point for financials in general as it would most likely mark an inflection point in Interest Rate policy and therefore underlying Bank’s profitability – while the bullish in the crowd would certainly spin this that is another indication that the worst is behind us & it’s time to buy them all……but if the language is removed or changed to a less dovish tone, this would definitely cause a knee-jerk higher in the Asset Sensitive plays – AMTD, BK, CFR, CMA, CME, DFS, FII, FULT, ICE, MF, MTB, NTRS, OXPS, PVTB, SCHW, SF, SIVB & TRAD – and a move lower in the MBS REITs – AGNC, ANH, CIM, CMO, HTS, IVR, MFA, NLY, RWT & WAC

BCAP ups CLX.  WEFA cuts PSYS.  WSJ positive NKE ahead of tomorrow’s earnings.  WYN downgrade at GSCO.  LTD announces dividend and buyback.  ALXN added to Conviction Buy list at GSCO.  ATHN higher on earnings.  PIPR cuts CAKE, EAT.  BMOC cuts CBI.  GSCO ups CVH, ONXX, PRXL.  DB reits net income estimates.  FPO, GEL, GLP announce secondary.  MCHP raises guidance.  MPEL upgrade at CSFB.  RDS/A announces increase to production.  UBSS ups SBUX.  PIPR ups SONC.  SQNM misses by 5c.  GSCO cuts UAM. 

Asia mixed overnight.  Europe roughly 50bps higher.  USD -35bps.  Oil +120bps.  Gold +150bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
AES CORP                     11.94    +3.2 %  4411
WYNDHAM WORLDWID   24.00    -3.03%  540
LTD BRANDS INC            24.35    +2.7 %  53317
STARBUCKS CORP          25.03    +2.5 %  47155
ANHEUSER-SPN ADR       51.06    +2.14% 3127
MICROCHIP TECH           28.43    +2.12% 2700
AK STEEL HLDG              23.48    +2.0 %  16225

Today’s Trivia:  What fish is most poisonous to humans?

Yesterday's Answer:   The year after a school wins the NCAA basketball tournament, applications rise 75% on average!

Best Quotes:  United States: Healthcare; CL changes to reflect evolving themes in healthcare
Jami Rubin, Matthew Borsch, and our Healthcare team are making changes to our Healthcare conviction list as we seek to increase our exposure to higher beta and smaller cap names. In addition, we are reducing our exposure to managed care as our Washington DC analyst Alec Phillips now expects more than a 50% chance of passage of healthcare reform legislation. Going forward, we continue to argue for a constructive view in healthcare given: (1) our expectations that the policy cloud will dissipate with NT resolution of healthcare reform: (2) return of confidence in pharma earnings stability and turning of the core managed care underwriting cycle, and (3) increase in M&A activity targeting small cap biotech and improved capital allocation. While we cannot predict the S&P 500, our market strategist David Kostin still sees a shift to defensive stocks in 2H:10 which bodes well for healthcare.


NAME
ANALYST
 
ACTION
TO
FROM
COVENTRY HEALTH CARE (CVH)
Rubin
UPGRADE
NEUTRAL
CONVICTION SELL
ONYX PHARMACEUTICALS INC. (ONXX)
Li
UPGRADE
BUY
NEUTRAL
PAREXEL INTERNATIONAL CORP. (PRXL)
Jones
UPGRADE
BUY
NEUTRAL
BOSTON SCIENTIFIC CORP (BSX)
Roman
DOWNGRADE
CONVICTION SELL
NEUTRAL
UNIVERSAL AMERICAN CORP (UAM)
Miller
DOWNGRADE
CONVICTION SELL
NEUTRAL
ALEXION PHARMACEUTICALS INC (ALXN)
Li
ADD TO CL
CONVICTION BUY
BUY
ICON PLC (ICLR)
Jones
ADD TO CL
CONVICTION BUY
BUY
KIMBERLY-CLARK CORP (KMB)
Sawyer
ADD TO CL
CONVICTION SELL
SELL
ST. JUDE MEDICAL INC. (STJ)
Roman
REMOVE FROM CL
SELL
CONVICTION SELL
TEVA PHARMACEUTICALS (TEVA)
Stanicky
REMOVE FROM CL
BUY
CONVICTION BUY
UNITED HEALTH GROUP (UNH)
Borsch
REMOVE FROM CL
BUY
CONVICTION BUY
DOMTAR CORPORATION (UFS)
Skidmore
ADDING TO CL
CONVICTION BUY
BUY
WYNDHAM WORLDWIDE CORP (WYN)
Kent
DOWNGRADE
NEUTRAL
BUY
BRISTOW GROUP INC. (BRS)
Dayen
-
INITIATE
NEUTRAL
-