Friday, August 13, 2010

Morning Note...

Happy Friday the 13th… Futures are ~10bps this morning on relatively light – or at least non-impactful – Friday summertime action.  This morning’s 8:30am economic releases were all largely in line:  Month-over-month Consumer Prices for July were slightly higher, at +0.3% vs. the +0.2% expectation.  Year-over-year CPI was spot on with expectations, at +1.2%.  Advance Retail Sales for July were a little light – at +0.4% vs. +0.5%/expected – but represent an improvement over the June -0.3% number.  In Europe, markets are lower despite stronger than expected GDP data in the Eurozone, particularly Germany and France.  In Asia, Hong Kong also released GDP data overnight which was weaker than expected.  In M&A news, Blackstone is buying Dynegy (DYN) for $540 million and IBM is buying Unica for $21/share.  In other news, Eli Lilly is lower pre-market on news that it lowered revenue guidance, and Nordstrom is lower on in-line earnings.  Note that yesterday afternoon, Johnson & Johnson (JNJ) sold bonds at a record-low yield.  U of Michigan Consumer confidence and June Business Inventories are due at 10am today. 

For those interested in the market’s most up-to-date Wall of Worry list, here’s the Hedgeye note – very appropriate on Friday the 13th:

In addition to the week-to-date Nightmare on Wall Street drop of -3.3%, here's what is legitimately scaring US equity investors (in the order that the data points occurred):

1.       China bought 456B Yen worth of JGB's (Japanese Government Bonds) in June = most since 05' (and remains a net seller of US Treasuries).
2.       Goldman Sachs (Jan Hatzius) cut his US GDP growth estimate to 1.9% for 2011 (that's the closest estimate to Hedgeye's 1.7%).
3.       Chinese Imports dropped 1100 basis points sequentially in July to 23% (vs. 34% in June) = Chinese demand continues to slow.
4.       Chinese property prices dropped to +10.3% y/y in July versus +11.4% in June.
5.       USA's NFIB survey for small business confidence hit another sequential low this month dropping to 88.
6.       Bernanke's QE2 was met with selling of both US stocks and get this, Treasuries!, with this morning's 2-year yields trading UP versus Tuesday.
7.       China's bank regulator ordered the transfer of off-balance sheet loans to its books by 2011 (and make provisions for defaults)
8.       US MBA mortgage applications held flat week-over-week, enforcing the reality that Americans refuse to lever themselves up again.
9.       Chinese industrial production, retail sales, and money supply growth (M2) all slowed again sequentially in July versus June.
10.   Chinese inflation hit a 20 month high, accelerating +3.3% in July versus +2.9% in June = oil, food... you know... the things they need.
11.   Venezuelan and Argentinean bond yields pushed higher as their dysfunctional governments try to issue the world sovereign debt.
12.   America's budget deficit tacked on another $165 BILLION loss in July, taking spending up +10% y/y with tax revenues barely flat.
13.   Russian Bond sales saw only 44% of the demand de goalies in de Kremlin were looking for (25 BILLION Rubles) = Russian bond yield up.
14.   General Disaster (GM) announced their pending $12-16 BILLION Dollar IPO = 2nd largest IPO in US history; what is wrong with America?
15.   US weekly jobless claims ripped higher to 484,000 = representing the highest jump in rolling weekly claims for 2010 YTD!
16.   The Fed's Balance sheet expanded again week/week going up to $2.33 TRILLION DOLLARS after Ben bought $1.7B more MBS this week!

Sorry, for penmanship's sake I tried to go with 13 bearish points, but I had to print 16 as pushing Hedgeye's own book of ideas trumps my literary aspirations.

Interesting glance at Hedge Fund performance from CSFB yesterday, in case you missed it:

 ADSK beats by 9c.  JWN reports in-line and reaffirms guidance.  LLY lowers guidance.  NVDA misses by 8c.  MSCO cuts STRA.  WEFA cuts EAT.  BofAMLCO ups CFX.  BARD ups STEL.  UBSS ups WERN. 

Asia mostly higher overnight.  Europe down ~50bps.  USD +10bps.  Oil flat.  Gold flat.  EUR/USD 1.2804.

S&P 500 PreMarket 8:30am (last/% change prior close/volume):  

Today’s Trivia:  To build on yesterday’s question, what book is #1 on the all-time children’s book sales list?

Yesterday’s Question:  What beloved children’s book - #4 on the all-time English language children’s book sales list – was published 50 years ago today?
Yesterday's Answer:  Dr. Seuss’s Green Eggs and Ham was published 50 years ago yesterday. 

Best Quotes:  Good Morning - AMG data last night showed broad inflows, except for equities that had a modest outflow.   There has been an avalanche of new issuance in the high grade market.   Most recently JNJ's print.  Record low 10yr & 30yr paper at 2.95% and 4.5% respectively, the equity dividend is 3.7%.  Fear of losing capital vs. return on capital.  Jobless claims back to a 5 month high.  The market has a high level of uncertainty going forward, therefore the bias of the market will continue to be to the downside.   Obama starts GSE reform next week.   Should be interesting to see who he bashes to pay for it, my guess it will be the banks again.  Financials are for sale, and the charts look bad.   1070.56 yesterday low, week low, and the month low.  1050 three week low.  DYN getting bought by Blackstone.   Have a great weekend.  Sell the rallies.   BBQ something, summer is almost over. –BofAMLCO trader