Friday, June 11, 2010

Morning Note...

Futures were relatively flat this morning as U.S. markets paused after yesterday’s ~3% gains, until the 8:30am Advance Retail Sales release which took us down a quick 70bps to currently stand at -80bps premkt.  The release indicated a 1.2% drop in retail sales versus the +0.2% expectation and the +0.6% prior reading for April.  According to the release, auto sales dropped 1.7%, building materials dropped 9.3%, and gasoline dropped 3.3%.  Overnight, data in China was mixed, as industrial production was 16.5% and retail sales grew 15.7%.  CPI was hotter than expected, however, at +3.1%, meaning inflationary pressure may still exist there.  Relatively quiet this morning beyond that economic data other than positive comments from Spain’s Banco Santander saying the crisis in Spain has been blown out of proportion and news that DELL may need to restate Q1 earnings over a misappropriation of $100M.  UMichigan confidence due at 10am, along with Business Inventory data. 

Plenty of chatter out there regarding the EUR/USD as it nears the $1.18 inception level in 1999.  It’s worth noting that two days ago Goldman took its EUR target down to $1.15, and that yesterday investor Jim Rogers actually made positive comments about it achieving a compelling level here.  Seems to be holding $1.20 for now as some of the European news and political jawboning slows down (maybe ahead of the World Cup?  Or just summertime in Europe when everyone goes on 8 weeks vacation?) and is at $1.2115 as of writing.  Regarding market commentary, the best line recently may have been from the CNBC commentator yesterday who said our manic markets have been taking their cues from Mr. Miyagi:  risk on…risk off…risk on…risk off…   That’s pretty good.  Dennis Gartman opened with that same theme in this morning’s note:

THE US DOLLAR AND THE YEN ARE FALLING relative to nearly every other currency, both “large” and “small,” as risk is once again being taken on aggressively around the world. We find this strange “dance” rather difficult to dance to as the global capital markets swing from anger to euphoria and back again in a matter of hours, always keeping the participants off guard and seemingly off-key. One day the Yen and the Dollar are strong and the global capital markets… the global equity markets en masse primarily… are weak, and materially. The next day the dollar and the Yen are weak and the global capital markets are strong, and again, materially so. We cannot remember a time as prolonged as this one has become where this strange dance music has been played and the market participants have danced as long and as wildly as we are dancing these days. It is a rhythm we are not familiar with, and we find ourselves out of step and off balance more often than not.

For the gold bugs, Gartman also had these comments:

Turning to gold, it has had a rather substantive amount of bearish news thrown at it this week and although the market is lower, given the severity of the bearish news we think gold has actually traded quite well. Firstly, on Wednesday Dr. Bernanke said, while speaking to the House Budget Committee, that

I don’t fully understand movement in the gold price. Other commodity prices have fallen quite severely, including oil prices and food prices, so gold is out there doing something different from the rest of the commodity group…. There is a great deal of uncertainty and anxiety in the financial markets right now. Some people believe that holding gold will be a hedge against the fact that they view many other investments being risky and hard to predict.

In other words, he is at best agnostic about gold, and at worst, rather bearish of it. Then came the news from China that an official at SAFE (the State Agency for Foreign Exchange) thought little of gold as a reservable asset. The gold bulls have hoped for months, if not years, that China’s reserve bank would begin aggressively buying gold for its account. Although the People’s Bank may yet do so, SAFE’s admonition against it doing so does put a bearish damper on those hopes.

We fear for gold today, for if $1215 is “given” to the downside after a week of generally weak prices we might see a flood of sell stops touched off. We’ve said all week that a drop back toward $1200-$1210 seemed reasonable and for now we’ll stand by that statement. Should gold trade down toward the low end of that range our propensity shall be to buy gold, but not until then. .

Interesting report on NPR this morning on a recently released Boston Consulting Group report that claims global wealth has rebounded to pre-meltdown levels and that the number of millionaires is up 14% year-over-year.  If true, that’s amazing…what short memories we – as the movers of these markets that probably generate this wealth – have…

I don’t often make political commentary in this space, but the BP spill – and BP’s stock action – prompts some discussion.  First, amidst the crazed media frenzy that vilifies BP at every chance (and I am not excusing their negligence, I am merely making a point), America needs to take a long hard look inward at our own addictive consumption of fossil fuels…our need for SUVs…the essence of our overtly cushy lives, all of which draws on fossil fuel consumption.  Here’s an analogy:  If you were addicted to drugs, and one day your drug dealer clipped your mailbox when coming to your house, or sideswiped your car or something, who would you blame?  Really?  You would blame him?  Or would you look inward at your own destructive addiction as the ultimate cause of the problem?  I’m just sayin’… Second, don’t for a minute think that there aren’t roughly 5000 other offshore rigs – owned by a multitude of companies, many of them U.S. – with just as troubling safety records.  It’s like the old saying about cockroaches…there is never just one.  Between the MEE coal mining disaster and the BP gulf disaster, isn’t it clear that the problem lies with American consumption that drives us toward ever-deeper and ever-riskier ventures…and it’s especially troubling when contrasted against the wind farm, for example, that was approved off Nantucket (against the protest of sailors there who wanted those winds to themselves for recreation…) the very same week the BP spill occurred.  So Mr. Obama – where’s the push to alternative energy?  And where’s the leadership regarding a solution to the Gulf spill?  When I started in this business I once overheard someone say, “I want you to bring me solutions, not problems.”  So what are the solutions?  (ps – it’s worth noting that there’s a biting Mitt Romney editorial out there taking Obama to task for the same thing…I read it and it spurred this rant…full disclosure.)

ARST higher on earnings.  BCAP upgrades US Pharma.  Leerink ups BMY.  WSJ reports BP may cut dividend.  FNSR beats by 2c.  STD positive comments.  WEN receives inquiry regarding acquisition from third party.  UBSS ups X. 

Asia higher overnight.  Europe holding on to slight gains while Germany is 50bps lower.  USD flat.  EUR/USD $1.2115.  Oil -190bps.  Gold +45bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
WENDY'S/ARBY'S-A        4.81      +10.83%           154057
COMCAST CORP-A         17.11    -5.31%              100
L-3 COMM HLDGS           76.02    -4.83%              400
ABERCROMBIE & FI        34.27    -4.62%              1150
PACCAR INC                  40.41    -3.99%              1755
SPECTRA ENERG            19.78    -3.75%              292
BRISTOL-MYER SQB       25.53    +3.61%             311609
BED BATH &BEYOND       43.25    -2.96%              4200
STANLEY BLACK &          52.50    -2.92%              100
J.C. PENNEY CO              25.58    -2.63%              300
CONSTELLATION-A         16.85    +2.62%             2800
PRUDENTL FINL              56.72    -2.53%              2326
MBIA INC                       5.85      -2.5 %              16225
DELL INC                       12.75    -2.45%              86142
MANITOWOC CO            10.00    -2.44%              100
WEATHERFORD INTL      13.32    -2.35%              7545
CORNING INC                 17.40    -2.3 %              8935
JANUS CAPITAL GR         10.20    -2.3 %              300
PFIZER INC                    15.25    +2.28%             384147
SOUTHWESTRN ENGY     43.03    -2.23%              700
INTUIT INC                    35.29    -2.22%              5300
HOME DEPOT INC           32.00    -2.2 %              6613
CARNIVAL CORP             35.54    -2.17%              4250
CAPITAL ONE FINA         39.21    -2.15%              1908
DOW CHEMICAL             25.83    -2.12%              3250
MARATHON OIL              31.53    -2.05%              500
ADV MICRO DEVICE        7.85      -2.0 %              85115

Today’s Trivia:  Which World Cup tournament saw the most total goals scored, with 171?
Yesterday's Answer:  Brazil has the most total match victories at the World Cup, with 64.  Mexico has lost the most…22 times in the 13 tournaments they have qualified for.  

Best Quotes:  “Do Over…It is not often that the markets perform a nearly literal “do over.”  Today’s investors received the rally that the market was on pace for early yesterday before it failed.  Interestingly, the catalysts that appeared influential yesterday were the ones that drove the action today.  China’s May Import and Export data was officially released and on par with leaked readings.  Both metrics were up over 48% year over year.  The real kicker was BP.  BP was pummeled nearly 15% yesterday here in the U.S. after it closed in its home market.  The stock gapped down 12% when it opened in London last night, and the majority of the losses were immediately recovered.  Whatever the catalyst for yesterday’s selling of BP here in the U.S., it appears to have been very much off the mark.  Whether it was a bear raid, a bad story circulating or simply old fashioned capitulation, the level of inefficiency it created was remarkable.  It is not often that type of opportunity comes around.  It makes you wonder whether the action in a single high profile stock can represent capitulation for the entire market.
European Vacation…In addition to those stories that carried over from yesterday, there was finally a round of good news out of EuropeSpain sold €3.9 Billion of 3 year Notes and Italy sold €5.5 Billion of 12 month T-Bills.  The successful auctions provided stability to the Euro.  Speaking of which, that should be a tool for Central Banks to sooth markets.  If the Central Banks wish to calm markets without going to the extreme of a new bailout program which would undermine confidence, then the Euro is the way to do it.  The currency has weakened nearly 17% versus the Dollar this year and is testing historic support levels.  This suggests that this may be a good point and level to intervene, by keeping it pegged in a range.  It is weak enough to help Europe, and other nations prefer not to see their currencies strengthen from here.  Since the currency instability has served as a catalyst for so many moves in other markets, tempering the currency’s volatility will likely ease the heightened volatility throughout the system.”

--Mike O’Rourke, BTIG