Morning Note...

Futures slightly lower (-20bps) this morning as the USD bounces 30bps (thus pressuring equities), bellwether retailer WMT beats but trades lower on Q4 guidance, and initial jobless claims & continuing claims were better-than-expected (502k vs. 510k est. and 5.631M vs. 5.7M est., respectively) but far from inspiring. MBA mortgage applications were +3.2% vs. +8.2% last week.  Friday the 13^th tomorrow – we’ll see Trade Balance data, the Import Price Index, Agilent earnings, FDC earnings, ANF earnings, JCP earnings, and EL earnings.  DIS reports tonight.  Keep an eye on the Treasury’s 30-year auction ($16B) at 1pm today.  Volumes remain light. 

Interesting to note that today marks the ten-year anniversary of the Clinton repeal of the Glass-Steagall act (which – in simplest terms – allowed  commercial banks to merge with investment banks - creating Citigroup, for example), and Congress is doing some saber-rattling around potential regulation, or perhaps even a return to Glass-Steagall… This is the #1 hit on BBERG news this morning, and banks are justifiably frightened: 

Seven Wall Street lobbyists trooped to Capitol Hill on Nov. 9, hoping to convince Representative Paul Kanjorski’s staff that his plan to dismantle large financial firms was a bad idea. They walked out with a sobering conclusion, according to the accounts of two attendees who requested anonymity because the meeting was private. Not only was Kanjorski serious, he planned to offer the legislation as early as next week -- and it just might pass. Today marks a decade to the day that President Bill Clinton signed the repeal of the Depression-era Glass-Steagall Act that split investment-banking from lending and deposit-taking. The repeal allowed the creation of Citigroup Inc., the financial colossus now propped up by $45 billion in taxpayer rescue funds.  Financial firms are scrambling to prevent Congress from re- imposing the act.  “We’re playing with live ammo,” said Sam Geduldig, a lobbyist at Clark Lytle & Geduldig who represents financial- services firms and wasn’t at the Nov. 9 meeting. “The banking community is rightfully concerned.”

In other news, Obama is off to Tokyo, as he kicks off his Asian tour…otherwise known as “the USA meeting its banker and trying to assuage fears we won’t default on our debt.”  This ought to be good.  Here’s a preview of a great BBERG essay that is printed in the quote section in its entirety – it’s worth a read:

Global recession. Free trade. Security. Climate change. Afghanistan. Iraq. North Korea.  Barack Obama sure has lots to discuss on his maiden voyage to Asia as U.S. president. Yet all this is just conversation compared with the real issue on Asia’s mind: a wobbly dollar that’s putting the region’s money at risk.  Think of this trip as a visit to America’s banker, and an unpleasant one. Asia wants assurances that the U.S. can repay its fast-mounting debt and prevent a dollar crash. The reality dawning on Asia is that Obama can’t offer them such a pledge -- not with U.S. borrowing so out of control.  Dollar anxiety is reaching a fever pitch. It’s sucking the life out of key issues pertaining to the future, and it’s time to do something about it. Asia needs a plan to scrap its dollar addiction, and it can start in Singapore this week.

After the bell last night, HPQ announced it would acquire COMS for $2.7B and issued upside guidance.  URBN beat by 1c.  KSS beats by 2c but guides slightly lower.  BUD trades lower on earnings.  SUSQ ups NDAQ.  GSCO ups ARO.  KO analyst day.  Barron’s defends GRMN.  MCD analyst day.  BCAP ups CSX, cuts BNI.  AAP beat but trades lower.  UPS CEO made bullish comments.  BRCD cut at THNK and PIPR on HPQ/COMS deal.  AMAT reported 11c/share but announces 1500 jobs to be cut.  UBSS ups MBT and PFWD.  TWPT cuts RHIE.  AMD trading higher on settlement of antitrust issues.  JDSU higher on Cramer comments.  CTRP higher on earnings.  GMCR lower on pre-announcement. 

Asia lower overnight.  Europe slightly higher, roughly 35bps, across the board.  Bond prices are lower.  Oil -1%.  Gold flat.  USD +30bps.

Brightpoint News: 

Brightpoint PreMarket (yest close/premkt/% change/volume):

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

ADV MICRO DEVICE        6.45      +21.24%           3667179

JDS UNIPHASE               7.69      +6.81%             155790

DOW CHEMICAL             27.60    +3.33%             76308

ANHEUSER-SPN ADR       47.04    -3.29%              16406

JOHNSON CONTROLS     26.65    -3.2 %              200

HCP INC                        28.30    -3.18%              100

Today’s Trivia:  What are the maxilla and the mandible?

Yesterday's Answer:  The Lowenbrau bottle expected to auction for roughly $8,000 this weekend survived the Hindenburg crash in 1937. 

Best Quotes: “A different perspective is providing by monitoring the Dollar-S&P 500 relationship in another way, by adjusting the S&P 500 for the movements of the Dollar index.  By adjusting in this manner, you are taking into account both the influence of the market and the currency in which it is denominated, which are both factors that the market has been watching daily.  See the chart below.  We have previously referred to the past ten years as the United States’ lost decade because as the chart indicates, the markets saw through the weak fundamentals and bad behavior that were disguised as health as the Dollar lost ground. 

Now, as the nation attempts to heal the economy and correct the bad behavior, we expect this relationship to once again capture the true status of the markets.  Today, there is a great deal of angst in the market.  Gold is truly a hot commodity.  Newsweek, Main Street and Central Banks are worried about asset bubbles.  Equity mutual funds are at 2 years of outflows and running.  We believe there is a good deal of speculative short term trading activity but not in the form that many suspect.  The speculation is on the other side, betting against the market and the economy looking for the correction of this 65% rally.  Every uptick in the Dollar has provided the opportunity to sell futures and look for the correction.  Instead, if you look at this market from a Dollar Adjusted S&P 500 perspective, you will see that we are only up 36% from the low, 12% year to date, and still 35% below the 2007 peak and 51% below the Dollar Adjusted 2000 peak. The nation’s problems cannot be cured overnight (although it seems as though many expect them to be), but at least participants today know what they are buying today as opposed to the façade of the past decade.  Seeing value in this market is simply a matter of perspective.”

--Mike O’Rourke, BTIG

Obama Meets Asian Bankers Who May Call His Loan: William Pesek

2009-11-11 20:00:00.1 GMT

Commentary by William Pesek

     Nov. 12 (Bloomberg) -- Global recession. Free trade. Security. Climate change. Afghanistan. Iraq. North Korea.

     Barack Obama sure has lots to discuss on his maiden voyage to Asia as U.S. president. Yet all this is just conversation compared with the real issue on Asia’s mind: a wobbly dollar that’s putting the region’s money at risk.

     Think of this trip as a visit to America’s banker, and an unpleasant one. Asia wants assurances that the U.S. can repay its fast-mounting debt and prevent a dollar crash. The reality dawning on Asia is that Obama can’t offer them such a pledge -- not with U.S. borrowing so out of control.

     Dollar anxiety is reaching a fever pitch. It’s sucking the life out of key issues pertaining to the future, and it’s time to do something about it. Asia needs a plan to scrap its dollar addiction, and it can start in Singapore this week.

     Let’s dispense with the fiction that the annual Asia- Pacific Economic Cooperation group summit will achieve much.

Trade frictions are rising, the U.S. is mired in recession, Japan is experiencing deflation and big pacts on climate change or denuclearizing North Korea are non-starters.

     The best way to use this summit is to discuss an exit strategy. Not an end to government stimulus efforts, but a dismantling of Bretton Woods II. The system of tying currencies to the dollar that emerged after the crises of 1997 and 1998 is doing more harm than good.

                          Currency Risk

     In 2009, Asia’s currency-reserve arms race is mostly about risk. The wisdom of amassing huge dollar stockpiles was once clear enough. It was about walling off economies in times of turmoil and not having to go hat-in-hand to the International Monetary Fund. Now Asia is trapped.

     The IMF crystallized the problem recently when it said the dollar is still overvalued. Considering the U.S.’s debt load, near-zero interest rates and rising unemployment, the currency is clearly too strong. A weaker dollar makes sense and it’s what the global economy needs. Asia must deal with it.

     Asia doesn’t have a policy infrastructure to oversee such an effort. Japanese Prime Minister Yukio Hatoyama’s desire for an Asian version of the European Union is great -- it’s just a decade or more away. APEC is still an opportunity to pave the way for Asia to repatriate trillions of dollars and stop being America’s financier.

                        Within Its Means

     It won’t be easy and, chances are, Treasury Secretary Timothy Geithner would respond coolly. Yet the money could be used to deepen Asian bond markets and finance better roads, bridges, ports and power grids. It could fund vitally needed improvements in education and health care.

     Just as Asia needs to stop parking its savings in the U.S., the biggest economy must learn to live without Asia’s money. It would force the U.S. to live within its means.

     Yes, this is a farfetched idea. And there’s no widely accepted way to go about the process. The point is that we need to get radical if we are going to reduce financial imbalances.

In Asia, that means letting currencies strengthen and the dollar weaken. Few things would do more to stabilize markets than this shift playing out in a smooth way.

     We can wait until the dollar collapses and Asian central banks rush for the exits. Or we can devise a transparent process to avoid such a scenario. It may not happen without an Asian version of the “Plaza Accord,” the 1985 agreement to weaken the U.S. dollar against the yen. Why would South Korea or Thailand wean themselves off dollars if China won’t?

                       Beggar-Thy-Neighbor

     Here, recent comments by World Bank Chief Economist Justin Yifu Lin about yuan appreciation derailing the global recovery are unhelpful. How a development economist could argue with a straight face that China’s beggar-thy-neighbor model is good for us all is beyond me. Now that Japan has learned to accept a stronger currency, China must, too.

     Mere talk of Asia selling its Treasury holdings could spook markets. Then again, so could signs Asian central banks are increasingly buying real assets, such as gold or other commodities. In that sense, the process of Asia diversifying away from the dollar is already getting under way.

     That also goes for rumblings in China, Russia and the Gulf states about finding a new reserve currency. One of the most common suggestions is to expand the use of the International Monetary Fund’s so-called special drawing rights. Perhaps Asian central banks could talk with the IMF about creating some kind of currency-reserve sales rights managed through the lender.

     The mechanism here is almost less important than the stated goal. This issue will require a lot of brainstorming to pull off without roiling markets. Global imbalances will continue to fester unless drastic measures are taken.

     When Obama arrives in Tokyo tomorrow, he can expect to get an earful about the dollar. He should expect the same in Singapore, Beijing and Seoul.

     Such chatter will take place behind closed doors, and officials will try to claim currencies weren’t discussed. But, come on -- no issue is more germane to Asia’s outlook, both economically and fiscally. It’s time to do something about it.

     (William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)