AGR just pre-announced that they'll miss their quarter. On-going inventory issues at their storage and networking customers are apparently the issue. Take your pick: STX, WDC, ALU, NT and/or ERIC.
Position: None
Good morning. Stocks looked ready for a slightly higher to flat open this morning. Futures on the S&P 500 were up 0.4 point and were 1.1 points above fair value.
According to published reports, Citigroup (C) is getting ready to slash 15,000 jobs at a cost of $1 billion. Confirmation of the plan could come in the next few weeks.
Jewelry retailer Tiffany (TIF) beat analysts' quarterly estimates and issued an upbeat forecast for fiscal 2008. EPS came in at $1.02, including an impairment charge of 5 cents. Excluding the charge, results beat the average analyst EPS estimate of $1.05. For more details, please click here.
Crude oil was up 57 cents to $62.85 a barrel at the New York Mercantile Exchange. Gold was up $2.90 to $660.20 an ounce. Treasury prices were a bit softer, with the 30-year bond down 3/32 to yield 4.81% and the 10-year note off 2/32 to yield 4.62%.
Position: none
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Christopher Edmonds |
| Early View - Futures Higher, Oil Higher - March 26, 2007 |
3/26/2007 9:16 AM EDT
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Good morning. . .on the road this morning but a quick look at the futures - Dow futures are up 3 points, S&P futures are up 0.50 and Nasdaq futures are up 5 points, all close to fair value.
Oil is trading higher on all sorts of geopolitical news. . .May crude is up 47 cents at $62.75 and has pushed the $63 level earlier. Concerns in Iran are fueling supply issues and the Nigerian elections are in April. . .
Have a great day.
Agere's warning has real bite - it comes after pretty benign guidance from last January. There was discussion about a network market "wobble" in 4Q 2006. But apparently Agere's orders softened *after* January. So is it two wobbles or a slide? In the pre-market trading, this beastly network sector warning is being fought off by the valiant Verizon.
"Verizon Wireless and Alcatel-Lucent (Euronext Paris and NYSE: ALU) today announced a three-year agreement worth an expected US$6 billion for Alcatel-Lucent to supply a wide variety of network equipment, software and services supporting Verizon Wireless' ongoing network expansion and continuous improvements."
Anyone else had an intense flash of Deja-Lu? How about this 2004 press release: "Verizon Wireless and Lucent Technologies have announced an agreement worth at least US$5 billion for Lucent to supply a wide variety of network equipment, software and services for Verizon Wireless' national next-generation voice and data network."
See what Verizon does when the market confidence in Lucent or Alcatel Lucent wanes? They announce an "agreement" that bundles several years of maintenance and upgrade orders into one really big number that sounds impressive. That's because Verizon is dependent on ALU and wants to prevent any loss of confidence in the company that might lead Asian and European operators into defecting to other vendors. So I'm just a little suspicious about this Verizon-triggered bounce in ALU. I think the Agere warning might be a whole lot more relevant to the network market.
Position: none
Osiris Therapeutics (OSIR) update: Investors love stem cells! The stock is up strong this morning on Sunday's news reporting data from a small study of the stem cell treatment Provacel in heart attack patients.
If you owned OSIR going into today, profit-taking is definitely something I'd think about. This data is good, but the study is really small and was prospectively designed primarily to assess Provacel's safety. All the talk about efficacy is certainly interesting, but don't get carried away. Hard clinical efficacy endpoints are missing here, or the results compare patient results against their own baseline, not against placebo.
Simply put, it is way to early to say that stem cells repair damaged hearts. Anyone who says otherwise is pitching hype.
Position: none
ISIS Pharmaceuticals (ISIS: Nasdaq) is trading higher this morning on news that cholesterol-lowering agent 301012 was effective in patients with high cholesterol. While encouraging, this is not exactly new news.
As I previously discussed, efficacy is not the question here. Safety is. ISIS said the drug was well tolerated. However, 5 of the 8 patients enrolled experienced elevated liver enzymes, which can be a sign of liver toxicity. This can be a concern because patients on cholesterol drugs stay on those drugs. If liver enzymes are elevated after just 10 weeks, what happens when a patient is on the drug for 2 years?
Although the drug appears to be effective, I don't believe approval is a slam dunk.
Position: none
We are just about a month from when this last dip started, we have made back a big chunk of what was lost over the course of the last month but a dip lasting just a month might be too short.
I would expect volatility in both directions to persist a while longer. This is neither bullish or bearish but an expectation for more octane.
It would not be shocking to see the market rally up a bit more into quarter end and then sell off a little next week.
Position: none mentioned
Tero,Maybe its just a coincidence but with the exception of the Alcatel piece, they're all sourced from the same DNA.
Position: None
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David Peltier |
| Bonds Rally on Weak Homes sales |
3/26/2007 10:12 AM EDT
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The yield on the benchmark 10-year treasury is down about 5 points since the *surprise* report of a decline in new homes sales came out at 10 a.m. As bonds have rallied in price, the major stock market averages have extended their declines for the session.
I wish I could figure out how to read the binary Fed funds futures, to tell you how the probability of a rate cut has changed, but I'll leave that to Tony.
For what it's worth, I maintain the FOMC will not change interest rates in 2007, as commodity inflation persists and the broader economic data points continue to conflict each other.
Position: none
About two months ago, I noted in this space that as much as I liked biotech, the Biotech HOLDRs (BBH) was weighted too heavily toward Amgen (AMGN) and Genentech (DNA) for my taste.
The biotech sector, as a whole, offers a number of interesting plays on new treatments, testing equipment and intellectual properties. But the attractiveness of the sector doesn't carry over to the BBH, because investors' performance is linked so closely to the outlook for the major products sold by Amgen and Genentech.
As the most recent results for the index show, BBH investors have recently underperformed the vast majority of other biotech holdings due solely to Amgen's problems with Aranesp and Vectibex.
| At a Glance |
| Name |
Ticker |
Index Weight |
Recent Performance* |
| Genentech |
DNA |
38.9% |
-3.7% |
| Amgen |
AMGN |
23.8% |
-12.4% |
| Gilead |
GILD |
11.3% |
0.7% |
| Biogen |
BIIB |
7.2% |
-2.7% |
| Genzyme |
GENZ |
4.7% |
-4.3% |
| Applera |
ABI |
3.6% |
-3.8% |
| Medimmune |
MEDI |
3.2% |
3.2% |
| Biotech HOLDRs |
BBH |
100.0% |
-5.0% |
* Based on performance from 2/26 closing price to 3/23 closing price
Source: Yahoo! Finance |
In just four weeks, Amgen has shed more than 12% of its value, while none of the other top 7 holdings has declined by more than 4.3%. But because of the heavy weighting, the BBH is down 5% over the same time period.
If you like Genentech and Amgen and want just a touch of other biotechs in your portfolio, then go ahead and buy the BBH; otherwise, investors would be wise to do their homework, find the biotech plays that they like and make their own index.
Position: none
The selling kicked in right at or just below the gap downs from February 27th. Normal behavior as we discussed last week. The Ndx hit it to the penny and the Naz fell short by under 1/2%.
We also talked about the daily charts being extremely overbought so that in conbination with the high volume gap down is the reason for some good selling here. Go slow until divergences set up on the 60's again.
Position: Long AVAV
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Tony Crescenzi |
| Bad Report, Bad Signs, Some Solace |
3/26/2007 10:35 AM EDT
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Polar-opposite to Friday's report on existing home sales is today's report on new home sales. Recall in Friday's report, February existing home sales increased by 3.9% to a 6.69 million pace, 390k higher than expected. In today's report, new home sales fell 3.9% to 848k, about 150k lower than expected.
Although the new home sales report is more current than the report on existing home sales (new home sales are counted
upon contract signing, whereas existing home sales are counted upon the closing of a sale), it still makes sense to consider the figures on existing home sales, since any strength from past months could still have borrowed
from future new home sales.
More to come in my blog shortly.
Position: none
According to a contact of mine (haven't seen this myself, consider it unconfirmed), Apple stores will begin holding workshops on Adobe's (ADBE) Creative Suite 3 tomorrow. If this is true it's great promotion for Adobe.
Position: none
Just took a look (probably should have done this first) at Apple's website and found this: "Adobe Creative Suite 3 is launching on March 27, 2007, and we'll be showcasing it in our theater on March 28. An Adobe representative will be on hand to demonstrate Adobe Creative Suite 3 for design professionals, now available as a Universal Application."
Position: none
So interesting to watch the bears get aggressive so quickly as there have now been six (6) consecutive readings over 1.0 on the put/call ratio. Pessimism doesn't have much trouble ramping once we get any selling. Not many believe in this market. Good news for the bulls longer term.
Don't forget that the daily charts are still very overbought so easy on new longs would be my adivce here.
Position: Long AVAV CNQ
The homebuilders have been hammered recently with new 52-week lows set on 3/13 for BZH, CTX and PHM. The good news today is that they are above those lows. The bad news is that BZH is rated a sell with fair value at $20.52, CTX is rated a strong sell with fair value at $19.42, and PHM is a sell with fair value at $13.73.
Position: none
Anything is possible at any time in the stock market, but the reason I believe ultimately we will break through 2470 and go much higher is because of bearish expectations. It seems to be that now that we've had two major selloffs, the masses are waiting on a third and a fourth. You see this in the piling on of puts in the options market. Almost as if it has to be because when you sell off that hard two times exactly two weeks apart, something else must be going on. Sharp selling is not uncommon in bull markets. So yes, we're still overbought, but you can't argue that no matter what side you may be on, pessimism ramps at the first hint of selling, and that just can't be a bad thing if your slant is to be long.
Position: Long CNQ
As originally published, this post contained an error. Please see Corrections and Clarifications.
Banks' exposure to loans secured by real estate totaled $4.51 trillion at the end of 2006. In this total are $2.18 trillion in first-lien mortgages secured by single-family loans including subprime loans. Loans secured by non-farm, non-residential properties account for another $904 billion. Construction and development loans, which are about 80% residential loans, total $565 billion.
Monies lent vs. home equity lines totals $559 billion, and loans collateralized by farmland and multifamily homes make up the balance of $302 billion.
This morning, Justin Lahart of the Wall Street Journal wrote, "Home Builders May Bear Brunt of Banks Angst" I disagree with Justin's conclusion, "If banks get nervous about making construction loans, the bust for builders may have only just begun."
Sure, the homebuilders are feeling the pain, as I have been covering that story too. But I have been saying that the bust is for the community and regional banks, as homes represented by the $565 billion in construction and development loans need to be completed, otherwise these loans become noncurrent and eventually the banks become the real estate owners of last resort. The category called other real estate owned (REO) is up 48.4% in 2006.
It took the Wall Street Journal 11 months to finally talk about the risks of construction loans. The next headline will be REO nine months from now.
Position: none
Great article on TheStreet.com by Nicholas Yulico called "Home Sales Data Debated". I didn't know that canceled contracts (and consequently, canceled contracts that then get restored) were not counted. The theory might be that the government underestimated the new-home sales, and this morning's real number might be more in line with what economists were expecting.
But if that theory is wrong, there are still several residential homebuilders that are trading at fairly high multiples of book value when compared with their competitors. RYL, for instance. here's a list of homebuilders at high multiples of book that might be interesting shorts.
Position: none
With apologies to John Mellencamp:
There's a poor man
With a new house
Bought it with a subprime loan
He's got an ARM, running high
You know, he's got it so good!
But the Feds are in the kitchen, cleanin' up the party's slop
Say, we remember, when the market really did rock?
Oh but ain't that America
Something for free!
Ain't that America, come here and see
Little pink houses, for you, for you and me!
On to the serious stuff. New-home sales peaked in July 2005 at 1.367 million and have fallen in as much of a straight line as possible for a monthly series to this morning's reading of 848,000.
At the end of July 2005, the S&P total return index stood at 1851.368; it ended last week at 2223.116.
Back of the envelope, please! New-home sales have declined at a 35.2% average annual rate while stock returns have increased at a 12.25% average annual rate. This is pain and suffering?
Judging from today's market reaction, we are in a recession, now defined as two consecutive hours of negative stock market returns.
Position: Next person to sell on housing data should be forced to explain why
Copper technical breakout $3.14 causing squeeze that is propelling FCX!
Position: none
You can't call copper a breakout when it's testing its 200-day simple moving average at $3.1445. An open tomorrow above would be a breakout. Copper has been below its 200-day SMA since Dec. 6, and it still is.
Position: none
Everyone is still far too relaxed about the pressure cooker bubbling away in emerging markets, specifically, when they start to react schizophrenically in all directions, it's usually a sign that something is not right. Today, China's Shanghai Composite Index gained 1.58% to take the index more than 2.5% above the point it came crashing down from on Feb 27. Recall that after that day, some were predicting further declines as far down as 40% (and when Asia goes bearish on its own turf, there's usually a good reason).
These gains in China while markets in Vietnam, Thailand and Latin America continue to slide are ominous, especially in the context of Japan and Hong Kong, both of which were up today, too. The movements suggest China is being associated far too causally with the bigger Asian markets, which is where the trouble began for Bangkok in '97 (being associated with more mature economies), and China more recently in February. The reality is that China's exchanges should move alongside the smaller, less mature, more volatile markets, which have more in common with the Shanghai/Shenzen exchanges. Otherwise, if trouble on these indices does spill over to China, the knock-on spills over to Hong Kong and Japan, the carry trade begins to unwind further, and it's chaos for everyone.
This threat is more on the horizon now than it was pre-2/27, in large part because Asia has learned so little about the actual state of her markets.
Position: None.
You can make of it what you want, but we've had 20 trading sessions since the blow-up started. The markets haven't rallied back to where they were prior to the blow-up on 2/27, but they aren't far away either.
I'm still a modest bull here. Think of 2/27 and subprime as an event akin to when the correlation traded blew up back in May 2005. Because the event was limited to a small area of the total financial space, the market as a whole resumed its rally. The present panic so far, is smaller in its impact than the confidence events of last May. At least, the VIX moved less, though the size of the pullback in the S&P 500 were similar.
I'm still a bearish on depositary financials and housing related issues. But slow momentum tends to persist, but fast moves tend to get reversed.
This is why I encouraged avoiding panic after the blow-up. You have to stay in the game to make money in the long run, so keep applying your disciplines, particularly the ones that you use for risk control.
Position: none mentioned
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