Morning Note...

Futures are -40bps this morning on the back of a weaker-than-expected ADP Employment Change for March.  +40k jobs was expected, but -23k was announced, putting the “red hot” expectations ahead of Friday’s Official Change in Nonfarm Payrolls in doubt.  A jobs gain of +185k is expected Friday, yet “whisper numbers” indicate a gain of as much as 250k jobs could be announced.  Note that it is month- and quarter-end today, and the cover story of the Wall Street Journal discusses the end of the Fed’s mortgage-buying program:  “With Fed’s Massive Mortgage-Buying Spree Ending Today, Market Seeks New Drivers.”  Recall that we’ll see weekly Initial Jobless Claims (week ending March 27^th) and Continuing Claims (week ending March 20^th) tomorrow morning.  Further, auto sales data for March will be announced throughout the day tomorrow and ISM Manufacturing data will be released at 10am.  In corporate news, HON raised guidance for both Q1 and full-year 2010.  Overseas, the Bank of Ireland trades higher on news of a capital raise.  Eurozone employment data was in-line, inflation readings were slightly hotter-than-expected, German employment was better, and UK confidence was slightly worse.  In political news, Obama plans to announce off-shore drilling here at home, which – when combined with recently announced expansion of nuclear energy programs – indicates a continued push away from Middle Eastern oil.  Concerns over Greece continue, as the FT reports that the recently auctioned Greek bonds trade lower:  Greece still has big problems,” said a senior banker. “The Greek bond syndication was very disappointing. Investors still do not have faith in Greece and are only prepared to buy the bonds for higher yields.”  Additionally, Bloomberg news reports that Greece plans to sell a global bond in USD in the next two months to help raise ~$16B. 

Given the light news on this holiday week and the focus on jobs and the “true U.S. economy,” I thought I might share some anecdotes on this topic.  Miami offers a smattering of conflicting data.  This caught my eye yesterday:

Forty-two percent of condos for re-sale in Miami-Dade, Broward and Palm Beach County are distressed, meaning more than 22,000 units are bank-owned or in short sale, according to a report by Bal Harbour-based Condo Vultures. The proportion is significantly weighted toward short sales, with around 3,600 bank-owned properties up for re-sale and almost 19,000 short sales. According to the report, 36 percent of these units are under contract waiting to close. Miami-Dade leads all three counties with 10,900 distressed condos up for re-sale. (TheRealDeal)

On the other hand recent events such as Art Basel (December ’09), the Miami Boat Show (late January) and the Winter Music Conference (last week) have all indicated a steady uptick in attendance and revenue.  Year-over-year, the change is notable.   Last year I was unaware that these events even took place.  This year, the traffic and the overall presence of these events was significant.  So is “the consumer back?”  Another anecdote:  In speaking to a self-employed friend in New Jersey recently, he indicated that his business (car wash) was probably worth half what he paid for it a year ago and that volume was down 50%.  In his words, “Atlantic City is dying…NJ teachers without tenure are all being let go…and 14 cops in my town just got laid off!”  You can imagine my surprise, given the “uptrend” one sees here in Miami.  Clearly he wasn’t lying, as I caught this story right after we spoke:

March 30 (Bloomberg) -- New Jersey Governor Chris Christie’s job approval skidded almost 10 percentage points after he proposed cuts to education and municipal aid in his $29.3 billion budget for the coming year, according to a Fairleigh Dickinson University poll.

On the heels of that, here’s an Interesting story from the USA Today… due to the dire financial condition of state and municipalities, the normal 5-10mph cushion on speed limits is apparently off the table as the police get stricter in an attempt to spur revenue.  As a result, “70mph in a 65 zone” is no longer safe – you may see a ticket for going 68mph!  Finally, add to all this the following story from yesterday:

March 30 (Bloomberg) -- Downtown Manhattan, where demand for office space began to surge three years after the 9/11 terrorist attacks, is about to lose its spot as the best- performing U.S. market. Vacancies may exceed 14 percent of the area’s 87 million square feet by late 2011, empty space that’s equivalent to four Empire State Buildings and the highest rate since 1997, according to property broker Cushman & Wakefield Inc. That doesn’t include the 4.4 million square feet of offices in two towers now under construction at the World Trade Center site. Those are scheduled for completion in 2013. “The amount of space that’s potentially going to come to the market will increase availabilities and put pressure on pricing,” said Kenneth McCarthy, Cushman’s head of New York- area research. “It will be quite awhile before it can be absorbed.”

“What’s going to happen with those big blocks is that they’re going to sit on the market for a while, because to divide them up and make them smaller and more marketable involves a huge capital investment, and a lot of landlords can’t afford it,” said Ruth Colp-Haber, a partner at Wharton Property Advisors Inc., a New York-based brokerage that represents tenants.  “The question is, when is the demand going to come into the economy?” Haber said. “Most don’t see demand returning till the end of 2011. The real estate cycle moves slowly.”

The picture only seems to get more muddled…so will the “real economy” please stand up?  Are current valuations justified?  Is the current rally off the March 2009 lows still justified?  Stay tuned…

Finally, in case you missed it yesterday, here’s the story on the latest call from PIMCO’s Bill Gross:

March 30 (Bloomberg) -- This may be the best news for stocks in a long time: Bill Gross, who manages the world’s biggest bond fund, says the 30-year bull market in fixed-income securities is ending. Though Gross, who runs Pacific Investment Management Co.’s $214 billion Pimco Total Return Fund, would never tell you to buy stocks, isn’t that what he means?  Pimco, which Gross co-founded, more or less said as much in December. It announced the Pimco Global Opportunities Fund, which will invest in stocks, though it also will buy bank loans, junk bonds and distressed securities. Stocks should be due for better times after a decade that featured the dot-com crash followed by the more recent Wall Street-induced credit crunch. The market certainly has picked up in the last 12 months. The benchmark Standard & Poor’s 500 Index is up more than 70 percent from its recession low a year ago this month. Stocks have improved along with the American economy, which grew 5.6 percent in the fourth quarter as corporate profits jumped 8 percent. Favorable news continues. Shares of U.S. Steel Corp., a backbone-industry company, have climbed almost 50 percent since Feb. 4. Apple Inc., maker of iPods and iPads, may hit $300 from its current price of about $232, Credit Suisse Group AG said Friday.

Bid ‘em Up… Starbucks Corp., the ubiquitous coffee-shop chain, last week announced its first dividend as a public company. Takeovers are heating up, boosting prices of target companies. Prudential Plc and MetLife Inc. will pay a total of $51 billion for insurance assets of U.S. government-controlled American International Group Inc.

Contrarians might sense that a long run for stocks is coming. At least until Gross spoke, investors were pouring money into bond funds, thinking first about safety after the most recent stock market debacle -- and, of course, missing the recent spurt in shares. So far this year, investors have placed about $89 billion with bond managers, according to Emerging Portfolio Fund Research Inc. That was about five times the rate in the first quarter a year ago. If investors sour on bonds, that amount of money will funnel into stocks. Bond investors are nervous because interest rates are rising, reducing the market value of their securities. The yield on the benchmark 10-year U.S. Treasury note stood at 3.86 percent yesterday, up from about 2 percent in December 2008.

Deficit Worries… Rates reflect the flood of Treasury bonds being sold to cover the U.S. budget deficit, which hit $1.4 trillion in fiscal 2009. Investors also worry about the inflationary effect of increased government spending. Higher interest rates and increased inflation can hurt stocks too -- eventually. But that day may be a long way off while rising yields and falling bond prices are here and now.

DRIV raised at FBRC.  WSJ/Barron’s cautious on VZ after news of CDMA iPhone yesterday – defends T and bullish on AAPL.  ERIC wins $1.3B network deal in India.  MWE announces 4M share offerin.  ONP prives 3M share offering at $8.25/share.  SAI misses by 1c.  UL upgrade at BofAMLCO.  SunTrust cuts FDP.  PIPR cuts PSYS.  BARD cuts AEC.  WEFA cuts SAI.  DBAB cuts ARMH.  BLAR ups OZM. 

Asia lower overnight.  Europe down roughly 50bps on the aggregate.  USD -55bps.  Oil +160bps.  Gold +110bps. 

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

FORD MOTOR CO           12.84    -3.31%  23045418

DYNEGY INC-A                1.28      -2.29%  13950

OMNICOM GROUP           39.01    -2.18%  1600

CABOT OIL & GAS          37.37    +1.99% 100

ADOBE SYS INC              35.00    -1.91%  200

LSI CORP                       6.21      -1.9 %  4130

GENZYME CORP              51.56    -1.83%  996

ANHEUSER-SPN ADR       49.83    -1.81%  2400

PEABODY ENERGY           44.85    -1.8 %  14374

MEMC ELEC MATER        15.24    -1.74%  2100

HONEYWELL INTL           45.72    +1.71% 21825

LINCOLN NATL CRP         29.57    -1.7 %  472

MBIA INC                       5.85      -1.68%  3475

EASTMAN KODAK           5.80      -1.53%  500

Today’s Trivia:  Aside from Iraq and Afghanistan, what is the next largest recipient of U.S. aid in the world?

                                                                                                                                                                             

Yesterday's Answer:  The tallest statue in the world – at over 400 feet – is the Spring Temple Buddha in Lushan, China:  http://en.wikipedia.org/wiki/Spring_Temple_Buddha

                                                                                                                            

Best Quotes:  “It was another slow trading session in the U.S. markets.  The S&P 500 attempted an early rally but the move quickly ran out of gas as the Dollar began to strengthen.  The IMF lowered Germany’s growth forecast for this year and next year, which fueled additional Euro weakness and kept a lid on the lackluster action in the S&P 500.  For 2010, the IMF reduced the German GDP forecast from January’s forecast of 1.5% to 1.2% and the 2011 forecast was reduced from 1.9% to 1.7%.  The IMF sighted slower than expected export growth and “continuing banking fragilities.”  We recognize the IMF is simply catching up to the market, but it is interesting to see how they quantify the situation.

“Simulation exercises suggest that German banks could suffer significant losses from commercial real estate investments in the U.S. and Spain, and more generally from exposures to Southern Europe.  The simulations also suggest that a reassessment of risks associated with claims on Southern Europe could have a large impact on capital flows within Europe, as German (and also French) banks would significantly reduce their foreign claims to restore capital ratios.”

The IMF breaks down the “Geographical distribution of Foreign Claims on International Banks,” for Germany, France, the United Kingdom and the United States.  By a wide margin, the United States has the least exposure in Southern Europe, with only $118.5 Billion of its $2.58 Trillion in foreign claims.  The U.K. has the second lowest exposure at $236 Billion of its $3.69 Trillion in foreign claims.  German bank exposure is $523 Billion of $3.46 Trillion and French exposure is $781 Billion of $3.57 Trillion.  Based upon those stats, it looks like the downgrade of French growth should be in process. 

There is a touch of irony here.  In his memoir, Treasury Secretary Paulson recounts an episode during the Bear Stearns meltdown when Deutsche Bank CEO Joseph Ackermann asked why Deutsche should do business with any U.S. investment bank.  There is no doubt, Ackermann gets high marks for exercising good judgment, on the other hand, his tact was reminiscent of Bear Stearns during the LTCM crisis in 1998.  Earlier this month, Ackermann found himself lobbying for a Greek rescue commenting “If we can’t stabilize the country, then the next problem after Greece would be the banks.”  Ackermann also stated that “If it really comes down to a question of rescue or no rescue, I’m convinced it should be a rescue.”

--Last night’s note from BTIG’s Mike O’Rourke