Monday, May 3, 2010

Morning Note...


Futures ~50bps higher this morning as markets digest several key developments…in NYC, a possible terrorist attack in Times Square was averted…in Europe, the IMF & EU agreed to a $146 billion bailout of Greece and will make payments ahead of Greece’s May 19th debt roll and the ECB eased all collateral requirements…additionally, new austerity measures were announced and protests among the Greek populace continue…bond yields have come in and CDS are tighter across Europe, including Portugal, Ireland, and Spain…in Omaha, Nebraska, Warren Buffet is defending Goldman Sachs while the NY Post is reporting a settlement is imminent…further, the Department of Justice announced they have been investigating GS concurrently with the SEC…note that Goldman’s annual shareholder meeting is this Friday…in China, reserve requirements were raised once again and investor Marc Faber called for a crash within “9-12 months”…in Australia, a mining tax was introduced for 2012 implementation, and has global mining stocks trading lower…seven more U.S. bank failures were announced over the weekend, bringing the 2010 total to 64…United & Continental have agreed to a $3 billion deal, creating the world’s largest airline…Avis raised its bid for Dollar Thrifty…financial reform continues to move ahead as the “Volcker Rule” still lives – a bill is due on the President’s desk ahead of the May 31st-June 4th recess in Congress…and the oil spill in the Gulf of Mexico continues to pressure BP, RIG, and the Obama Administration for their recent support of offshore drilling. 

Note that the U.K. and Japan are closed today.  Looking ahead, we’ll get auto sales today and retail sales on Thursday.  The U.K. election is May 6thGermany holds major elections May 9th.  Today also brings U.S. ISM Manufacturing data, and a blowout number is expected.  Friday we’ll see the Official Nonfarm Payrolls data and the Unemployment Rate.  Earnings continue to take a “back seat” to financial reform and European austerity/bailouts, but 1/6th of the S&P 500 reports this week.  Bellwether earnings include big media (CBS, TWX, NWS) and European financials (UBS, HSBC, RBS).  It’s worth noting that Harrisburg, PA is set to declare bankruptcy as it is expected to miss a bond payment today.  Further, the Times Square bombing goes into the ever-growing “near miss” pile, and markets aren’t paying much attention to it at all…but it’s worth noting that there are plenty of “unknown unknowns” that could easily roil equity markets world-wide.  Given the rally we’ve had, aren’t markets absolutely “priced for perfection?”  If so, there’s plenty of room to the downside for geopolitical or terrorist risk to unfold…

Regarding the “big picture,” I liked this morning’s quick summary from RBC:

Reasons to love the market-

-  3.2% GDP in March was led by consumer spending coming back, and GDP has expanded for 3 straight qtrs.
-  Friday's job report should show some meaningful job growth
-  Companies across the spectrum are all being bullish on the macro environment (even hospitals)- HMA, V, CAT, UPS, Dupont to name a few.

Reasons to hate the market-

-  money market funds  have  dropped from $4 Trillion to $2.87 Trillion since early '09 (Barrons)
-  Zacks saying the sell side has more Buy ratings relative to all the stocks they cover than at any point in the last 5 years.
-  Stocks are up 80% from the bottom
-  coinciding with the rally since '09, more stocks are registering as "overbought" on a variety of metrics more than at anytime in the last 5 years (RAJA strategist).

For those excited by the Greek bailout, consider this morning’s warning from Dennis Gartman:

THE FOREX MARKET REMAINS FOCUSED UPON EUROPE as European finance ministers gathered last evening in Brussels and approved a scaled down bail-out for Greece, designed, they hope, to prevent Greece from defaulting on its huge and rising debt load. For the moment then the threat of default on the part of the Greek government has been lifted… with the operative words here being “for the moment.” More problems exist, and we should have every doubt… a lesson drawn from history… that Greece shall not be able to abide by its newly imposed “austerity measures” and will remain as profligate in the future as it has in the past. To think otherwise is na├»ve indeed. Thus, it is but a matter of time until Greece does default, for her citizens will not accept the measures that shall be imposed upon them for long before rebelling. The Centre-Left and the arch-Left are already in the streets protesting, tossing Molotov cocktails, fighting with the police, and this will become more and more common place as we proceed through the summer. But for now, everyone is breathing a bit easier than they were late last week… for now.

Barron’s positive JNJ & ALK and defends BP, RIG, APC, and the PALM deal.  CITI ups TW.  CSFB ups CLH.  Janney ups PNK.  JPHQ ups NIHD.  MSCO ups INTU.  UBSS ups MTD.  CITI cuts PHM.  UBSS cuts VMC. WEFA cuts NWE. 

Asia weaker overnight (Japan closed thru Weds.)  Europe slightly lower (U.K. closed.)  USD +40bps.  Gold flat.  Oil flat. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
ALLEGHENY ENERGY        22.78    +4.59% 500
GEN GROWTH PROP       16.20    +3.18% 1000
TESORO CORP               13.53    +2.89% 29456
LOEWS CORP                 38.25    +2.71% 100
JDS UNIPHASE               13.36    +2.69% 4250
NUCOR CORP                 46.45    +2.49% 2873
SYSCO CORP                 32.30    +2.41% 1699
FIFTH THIRD BANC         15.25    +2.25% 2500
GENWORTH FINANCI      16.88    +2.18% 2400
CITIGROUP INC              4.46      +2.06% 3766119

Today’s Trivia:  In 1934, a man named Walter Varney debuted his airline (Varney Speed Lines) with a 530-mile flight between Colorado and Texas…what was his airline destined to become?
                                                                                                                                                                        
Yesterday's Answer:  Alaska boasts the largest seafood industry in AmericaLouisiana is second. 

Best Quotes:  “Good Morning -  Greece finally has their bailout.   Seems to have a ton of stipulations on cuts.  It requires fiscal responsibility that a country that has a debt levels that stand at 115% of GDP can conform to, call me a pessimist.  For the time being though the Greeks have avoided default, and the S&P is up.   The Euro is week on the heels of this, and the Dollar and Yen are stronger.  May Day celebration is going on around the world.  Reserve requirements higher in China would normally have a negative effect on commodity prices, but economic indicators are still bullish.  Also the Oil slick is still Trying to  be fixed, and that will have a negative impact on new drilling in the US.  Lots of data this week to absorb.  Payrolls end the week.  Auto sales kick it off.   Shelia Blair chimes in on the Financial reform plans, I hope they listen to her.    Technically support is 1176.75 last weeks low, 1171 is a 4 week low.   1190 was the break on Friday, and nothing meaningful until 1200.   Have a good day.”  --trader note