Wednesday, November 24, 2010

Morning Note...


**Happy Thanksgiving…The next Morning Note will be Monday, November 29th**

Futures ~75bps higher this morning, bouncing off yesterday’s weakness due to simmering tempers in North Korea & South Korea, better-than-expected earnings and German business confidence on The Continent, and better-than-expected jobs data in the U.S.  Drilling down on the latter, Initial Jobless Claims for the week ending November 20th were 407k, which is both favorable against the 435k expectation and the 441k prior reading.  Continuing Claims for the week ending November 13th were 4.182M vs. the 4.275M expectation.  In other economic news, Personal Income (+0.5%) and Personal Spending (+0.4%) for October were in-line with expectations, but October Durable Goods Orders were weaker-than-expected, at -3.3% vs. the +0.1% estimate.  In Europe, Porsche (+5%) reported Autobahn-speed sales growth and Germany’s business confidence survey (The Ifo Institute’s Business Climate Index) of 7,000 executives surged to an unexpected record high reading of 109.3.  The euro (+10bps) has steadied against the USD (-15bps against a broad currency basket) and Europe is up 65bps on average as of writing.  However, caveat emptor:  German-Spanish bond spreads continue to widen to record levels in Europe, Portuguese workers are planning the largest national strike in 22 years while credit default swaps on Portugal surge to a record 482bps, and Ireland’s sovereign credit rating was cut two levels by ratings agency S&P.  In Asia, markets were mixed but there was little follow-through (in stock market terms…S. Korea was down 15bps overnight) on yesterday’s North Korea/South Korea conflict.  Elsewhere, expect plenty of information to trickle out of the FBI’s insider trading probe over the coming days and weeks.  (And with the retail investor still reeling from the credit crisis, Bernie Madoff, Alan Stanford, the recession, and the flash crash, how is this new probe possibly a good thing?)  Oil +25bps.  Gold -22bps.  Note that U of Michigan Consumer Confidence and Home Sales data is due at 10am today.  U.S. markets closed tomorrow, followed by a half-day Friday…

BCAP cuts CPB.  RAJA cuts TSS.  JPHQ ups SNPS.  UBSS ups SEP.  BofAMLCO cuts SWS.  JPHQ cuts ROVI.  MSCO cuts WSO.  BARD cuts JCG.  NY Post speculates Carl Icahn may force a CDNS/MENT merger.  AWI declares special dividend.  FRO misses by 11c.  GES beats by 16c.  TIF beats by 9c. 

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

Today’s Trivia:  Believe it or not, there is actually some controversy (admittedly…a tiny bit) over Barack Obama’s claim as the first African-American U.S. President.  Any idea who may have been the first?
                                                                                                                                                           
Yesterday’s Question: Stroke, heart disease, and cancer account for what percentage of U.S. deaths each year?

Yesterday's Answer:  64% of U.S. deaths are attributed to stroke, heart disease, and cancer. 

Best Quotes:  BTIG…

Macro Mayhem, Mishaps & Misery.

It is clearly a "when it rains, it pours" environment from the perspective of headline risk.  In the case of some headlines, the risk is not limited to the news.  North Korean artillery opening fire on a South Korean island fueled what has been described as the biggest flare up on the Korean peninsula since the nations signed an armistice in 1953.  The insider trading probe continued to garner more headlines.  It is starting to appear closely related to the Wall Street Journal story from yesterday.  Last but not least is the ever present Sovereign Debt Crisis in Europe.  The concern with such crises is always related to the contagion fear.  The remarkable aspect of this crisis is that comments from policy makers continually make the situation worse.  Perhaps this should be expected when dealing with a fractious group pursuing diverse interests, but European policymakers appear intent upon testing the markets' limits of understanding.  

Throughout 2010, we have repeatedly been astounded by the actions and comments of the German leadership.  Once again, Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have made statements leaving us in a state of disbelief.  Today Merkel said "We are in an extraordinarily serious situation regarding the situation of the Euro."  In a speech in Parliament, Schaeuble remarked that "our common currency is at risk."  As has been the case all year, this is politicking in order to garner support for Germany's role in the European bailout.  It would be nice if these policymakers could find a way to convey their political point without the scare tactics that risk a currency crisis.  The Euro was down nearly 2% versus the Dollar today.  Who would think that with all of the Dollar bashing over the past month, the Dollar would be up 7% year to date versus the Euro.  The first thing that crossed our minds upon seeing the headlines were the stories of then Treasury Secretary Jim Baker threatening to weaken the Dollar in response to German interest rate hikes in 1987.  That episode is often considered among the key events fueling the 1987 crash.  By no means should you interpret our parallel to be one of impending gloom.  We are just highlighting that when it comes to the financial markets, politicians should say what they mean and mean what they say.  Markets have a tendency to test idle warnings and empty threats.  Overall, we remain in the bullish camp and while we would like to see some of the macro headline risks dissipate, pullbacks such as this are a buying opportunity for investors.