Thursday, February 3, 2011

Morning Note...

Unfortunately - and this is just one of the perils of joining a large organization with a series of checks and balances in place to protect its clients - the Compliance Dept at Franklin Templeton does not look favorably on my daily Morning Note post.  It's completely understandable, but I apologize in advance - I am suspending stock market posts going forward.  You'll just have to settle for rants against Miami drivers and the Miami Heat... All the Best, Ben

Wednesday, February 2, 2011

Morning Note...

Futures ~15bps lower despite today’s better than expected ADP Employment Change for January.  According to ADP, payrolls grew by 187,000 in January, which was lower than December’s +297,000 but beat the +140,000 expectation.   However, going back to December, recall that the Official Nonfarm Payrolls number came in at only +103,000 despite the ADP’s +297,000 number.  On the earnings front, Time Warner Cable (TWX) is 3.5% higher on better-than-expected profits.  Video game maker Electronic Arts (ERTS) is also 11% higher on earnings.  Note that China is closed for their New Year’s holiday until Feb 9th.  Looking ahead, Bernanke speaks tomorrow and we’ll get the ECB rate decision and – surely – some market moving headlines from Trichet.  The Official Nonfarm Payrolls release will be Friday.  In Europe, interesting to note that Greek bonds have recently outperformed German bonds (!!) and there are positive comments from Greek Finance Minister Papaconstantinou on the tape.  Ireland’s debt was cut at S&P.  Europe relatively flat.  Asia higher across the board overnight.  USD flat.  Oil +30bps.  Gold -10bps.  EURUSD 1.3805

Going back to yesterday, there have been some concerns that personal spending was slightly higher than personal income yesterday.  Does that indicate a return to elevated levels of personal credit?  It’s worth noting that this data was released the same day that the DJIA closed over 12,000 since the pre- to early-crisis days of June 2008.  Hedge fund manager Travis Anderson also made note of the return of the consumer in his Q4 letter:

Natural resource stocks continued to be leaders, building on their earlier gains, but more growth oriented technology and retail names came to life in the quarter, pushing several of them into our top ten for the year.  This I think indicates a nascent belief in economic recovery – and not just stock market recovery – taking hold among investors.

Considering yesterday’s better-than-expected Auto Sales data – especially the light truck segment, which correlates somewhat favorably to positive-thinking and spending consumers – Travis is clearly onto something. 

Interesting article this morning on hedge funds getting off to a slow start in 2011:

Many Hedge Funds Have Weak Start In January, Lagging Stocks  (Wednesday, February 02, 2011 05:16 ET)


LONDON (Dow Jones)--Many hedge funds lagged stock market indexes and took the wrong side of currency and interest-rate bets in January, in a lackluster start to the year for the industry.

The HFRX Global Hedge Fund Index, tracking about 250 funds that report on a daily basis, gained 0.56% in January, far less than the S&P 500's 2.4%. Treasury yields were little changed in the month as a mixed outlook for the U.S. economy led investors to reset their expectations on when interest rates might rise.

By strategy, HFRX constituent hedge funds investing in distressed debt had the best month, up 1.87%, while systematic hedge funds that use automated computer models to make trades across asset classes were down 2.58%.

One systematic trading fund that has already reported for the month, Man Group PLC's (EMG.LN) AHL Diversified, lost 3.5%. Last year it outperformed the broader hedge-fund industry with a 16% gain. The HFRX Global Hedge Fund Index was up 5.19% in 2011. A more widely watched index, the HFRI Fund Weighted Composite Index posted a 10.5% gain. Both indexes are compiled by Hedge Fund Research Inc. The HFRI index data for January will be released within about a week, after its roughly 2,200 constituent funds submit their data.

Another early reporter that makes public its performance, Third Point Offshore Fund, continued its 2010 winning streak with a 3.9% rise in January. The $2.77 billion fund makes investments linked to company mergers, debt restructurings and other corporate events and was up 34% last year.

Third Point in an investor update Wednesday said its top winners in the month included positions in fertilizer company Potash Corp. (POT) and paper-packager Smurfit-Stone Container Corp. (SSCC).

Potash Corp.'s stock rose 15% in the month, after record sales of potash in the fourth quarter. Smurfit-Stone shares soared nearly 50%, as the company announced an agreement to be acquired by Rock-Tenn Co. (RKT).

Losing positions included gold--one of Third Point's largest portfolio holdings--off about 6.3% in January, and German chemicals company Brenntag AG, whose stock slumped more than 9% in the month.

Meanwhile, Boussard & Gavaudan Holding Ltd. (BGHL.AE), a listed vehicle of Anglo-French hedge fund manager Boussard & Gavaudan Asset Management LP, Tuesday reported a 0.64% increase in January. The listed company invests in B&G's Sark fund, trading in stocks, credit instruments and volatility.

The hedge-fund industry for the most part has gotten back on its feet since the financial crisis wiped out hundreds of billions of dollars from its asset base. HFR last month said industry assets reached $1.92 trillion at the end of December, just short of their $1.93 trillion peak in mid-2008.

Regarding yesterday’s positive economic data, BTIG’s Mike O’Rourke posted a solid summary last night:

In the U.S., the ISM Manufacturing report was the big story. The reading of 60.8 was the highest since the 61.4 reading of May 2004. After that you need to go back to December 1987 to find the next higher print. Beyond being a strong number overall, it also had the same important characteristic of last week's GDP report - strong internals that should fuel the next couple of months. The New Orders component hit its highest level since early 2004, while inventories remained in check. The real impressive stat is that the Employment component registered its highest reading since April 1973. Yes, that's nearly 38 years (another one of those stats that takes you by surprise). There is no doubt that it is positive and impressive progress. The problem is the manufacturing sector has been in decline for essentially 38 years. In 1973, manufacturing jobs were 23% of Nonfarm Payroll Employment. In 2000, they were 13.2%, and today they are only 8.8% of jobs. We believe manufacturing is a notable portion of the structural Unemployment in the United States. Since China joined the WTO a decade ago, it has been a decade long downtrend in which the final washout was forced by the recession. Today's report represents great progress and U.S. Manufacturing jobs have likely registered a long term bottom during the recession, but a secular growth phase is not in the offing until trade balances begin to even out.

GNW lower on earnings.  WHR misses by 19c.  ENT lower on JMP downgrade.  HSP lower on guidance.  APKT better earnings and positive comments from Cramer.  ERTS beat estimates and was raised at PIPR.  HLX raised at MSCO.  NAVI may be acquired by TWX.  ANN raises guidance.  BGP bankruptcy filing reportedly imminent.  BRCM lower on earnings.  CVI announces 15M share secondary.  AFL misses by 2c.  DLTR cut at PIPR.  CSFB positive on RIO.  JDAS lower on earnings.  NUAN cut at GSCO.  MWA misses by 1c.  LVLT beats by 1c.  WSJ cautious on DF.  WWW cut at SUSQ.  MSCO cuts ENR.  MSCO cuts F numbers. 
S&P 500 PreMarket 8:30am (last/% change prior close/volume):

Today’s Trivia:  What controversial sociological tenet holds that human beings can only successfully maintain 150 relationships of any kind at one time?

Yesterday’s Answer:  n/a

Best Quotes:  Interesting from ISI last yest afternoon…

Some rumors going around today about a potential repatriation holiday from the Obama Administration.
Companies with the largest absolute amount of unrepatriated earnings potentially benefiting from a tax policy change include: GE ($84b), PFE ($43b), JNJ ($32b), CSCO ($32b), MRK ($31b), PG ($30b), MSFT ($30b), C ($27b), IBM ($26b), PEP ($22b), ABT ($21b), KO ($19b), SLB ($18b), BAC ($17b), BMY ($17b) and HPQ ($17b).

Tuesday, February 1, 2011

Morning Note...

Futures ~60bps higher this morning as earnings continue to impress and the Egyptian unrest appears to be settling somewhat.   (Although the Jordanian PM resigned – it may only be coincidental but the main concern in Egypt is the unrest spreading to other oil producing nations, like Saudi Arabia, in particular.)   Volumes remain slightly lower than historical averages (7.8B combined vs. 8.1B year-avg), which is understandable given Middle Eastern concerns and lofty market levels.  The VIX has also dipped back below 20.  On the earnings front, bellwether global shipper UPS reported $1.08 vs. the consensus $1.05 estimate and expects to increase their buyback in 2011.  Elsewhere, much-maligned BP is trading slightly lower on earnings (weak volume outlook) and the announcement it would be selling two refineries, and despite the fact it will be re-instating their dividend.  Agriculture giant ADM reported a 29% jump in net income and beat earnings and revenue estimates – despite higher food prices, demand is still strong.  In global macro news, China’s PMI was worse than expected, at 52.9 vs. the 53.5 consensus, and Eurozone (10% vs. 10.1%/e) and German (-10k vs. -13k/e; 7.4% rate is lowest since November 1992) unemployment were both slightly better than expected.  U.K. and German PMI results were also better than expected, and Europe is currently trading over 1% higher on aggregate.  In Asia, markets were mixed to slightly higher overnight.  In general, commodity stocks continue to show strength on the back of Asian and European growth in particular.  Oil -60bps after recent surge.  Gold +55bps.  USD -45bps.  EURUSD 1.3754.  Note that construction spending and ISM Manufacturing data is due for a 10am release today.  (Expectations are for the 18th consecutive month of growth.)  Auto Sales are also due later today. 

ALB upgrade at JPHQ.  IP upgrade at CITI.  UBSS cuts PCL.  JEFF cuts EXP.  OPCO ups VLO.  JEFF ups PLD.  GSCO cuts DISCA.  GSCO cuts SNI.  EMN lower on earnings.  MTW over 10% higher on earnings beat from strength in crane business.  ARMH higher on earnings beat.  BIDU +8% on earnings and Mizuho upgrade.  LXK +7% on earnings.  AMD +3% after recent INTC design flaw.  NVLS +4% on earnings and guidance.  EMR reports in line.  BHP, HL, PAL, RIO all higher on global growth.  

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

Today’s Trivia:  How many films were released in America in 2009, and how did this compare to ~10 years ago in 2000?

Yesterday’s Answer:  558 films were released in America in 2009.  479 were released in 2000. 

Best Quotes:  from a trader’s desk…

This was an eye opener: in front of employment data friday, in order to see unemployment rate back at 6% we would need to create 9.5mm jobs immediately and then add 125k new jobs each month to keep pace with population growth (not going to happen). If we could created 425k jobs/month it wold take past 2020 to get back to 6%. Say we could add 325k/months wed be in 2030 before we saw it. (data from gartman report).