Wall Street Breakfast: Must-Know News

• Market bottom or bear-market rally? Stocks posted their first major rally of 2009 yesterday, though it remains to be seen whether this is the start of a recovery or just a dead cat bounce. Investors responded positively to news from banks and the government, including the possible return of the uptick rule (see below) and a Citigroup (C) memo saying the bank was profitable in January and February (sending shares up 38%). The Dow Jones Industrial Average rose 5.8%, its biggest gain since November, while the S&P 500 gained 6.4% and Nasdaq gained 7.1%. Asian markets continued the rally this morning.
• Bernanke urges reform. Speaking to the Council on Foreign Relations, Bernanke urged a sweeping overhaul of U.S. financial regulations in order to avoid excessive boom-and-bust swings. Reflecting the idea that the U.S. has failed to properly manage a flood of capital over the past decade and a half, Bernanke wants lawmakers to rethink everything from how much money firms set aside against potential losses to protections for money-market funds. Bernanke also repeated his call for an agency to take responsibility for financial stability and said the initiative would 'require' some Fed involvement. The comments came as the White House prepares a proposal for regulatory change. (Read Bernanke's speech)
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• Stimulus redux. The $787B stimulus plan is less than a month old but lawmakers are already talking about the need for a second stimulus package to spur job growth. Rep. Nancy Pelosi says lawmakers must give the recently-approved stimulus a chance to work, but "we have to keep the door open" to more action if the economy remains weak. Aides were quick to stress there are no plans for an imminent second stimulus, but the fact that some lawmakers are ready to act again if necessary underscores the level of Capitol Hill concern over the depth of the country's economic crisis.
• Return of the uptick rule? Rep. Barney Frank, chairman of the House Financial Services Committee, says he expects the SEC to restore the uptick rule in about a month, and a SEC spokesman confirmed the agency is taking up the issue. Supporters of the uptick rule argue that the effect of short selling has exacerbated sharp market losses, and the rule would stem declines by preventing short sellers from piling into a given stock en masse. Opponents argue the markets are tanking because of the financial crisis, not because of short sellers, and the uptick rule doesn't work in any case; created after the market crash of 1929, the uptick rule was repealed in 2007 after the SEC discovered changes in trading strategies made it ineffective.
• Mark-to-market stays. Rumors have been circulating that the government plans to suspend mark-to-market accounting temporarily, but sources say the SEC has firmly decided not to suspend the rule. Mark-to-market accounting, which requires financial services companies to value assets at current market prices, has come under pressure from business groups who want to be able to account for hard-to-value assets more favorably while markets remain distressed. Bernanke has come out against suspending mark-to-market, but says the rule tends to reinforce economic trends and has room for improvements.
• Helping banks sell bad assets. In a TV interview yesterday, Geithner laid out a proposal in which the government would use capital injections as an incentive to get U.S. banks to sell distressed securities to investors. The private investors would also get federal loans to buy the assets as part of a two-pronged strategy to revive trading in mortgage-backed debt. The initiative reflects a bet that taxpayer assistance will prove to be cheaper in the long-run than having the government buy the assets outright. Geithner said the Treasury will provide 'precise' details of the plan in the next few weeks.
• U.S., U.K. plan major trade package. The U.S. and U.K. are putting together a trade package to provide several hundred billion dollars of financing to fight the sharpest global contraction since the Great Depression. The funds would come from G-20 nations, with around half the money used to increase funding of their own trade-finance agencies and the other half going to the World Bank, regional development banks and the IMF to help finance exports from the world's poorer nations. The initiative will be unveiled on April 2 at the G-20 summit in London.
• UBS raises '08 net loss. UBS (UBS) says its earnings will remain at risk, and has revised up its 2008 net loss to include a large U.S. tax fine and extra writedowns. The new 2008 net loss is 20.9B Swiss francs ($18.06B), up from the 19.7B Swiss francs previously reported. In a letter to shareholders, UBS said "even after substantial risk reduction, our balance sheet remains exposed to illiquid and volatile markets and our earnings will therefore remain at risk for some time to come."
• Madoff faces life in jail. Bernie Madoff, Ponzi scheme architect, is set to plead guilty on Thursday to 11 felony charges and will likely spend the rest of his life in prison. The charges bring little cheer to investors who were told they had $64.8B invested with Madoff and have since lost fortunes in the scam. Though court documents don't specify how much money investors lost, the government says it could seek $170B in ill-gotten gains from Madoff, an estimate of every dollar put into the fraudulent enterprise during the time prosecutors are focusing on. Though Madoff's plea marks a milestone in the case, it isn't expected to help investigators who are still trying to determine just how the fraud was perpetrated and whether Madoff worked alone.
• GM readies to sell part of Opel. Sources say General Motors (GM), fighting to survive, is ready to sell at least half of its Opel unit to private investors with German government support. The decision to give up control after 80 years of owning the unit is part of GM's plan to win up to €3.3B in European state aid and save what's left of its carmaking in the region. The proposal is in an early stage and will still require GM's European unit to save $1.2B annually.
• Toshiba rises on profit rumors. Shares of Toshiba (TOSBF.PK) jumped 9.5% in Tokyo trading after a newspaper reported the company will likely see an operating profit of around $1B next business year. According to the Nikkei newspaper, lower fixed costs and growth in its infrastructure business will help make Toshiba profitable in the year to March 2010, despite overall weakness in the chip and consumer electronics sectors. Analysts are expecting a ¥103B yen loss, and remain unconvinced Toshiba can post such a strong turnaround as it faces its worst-ever annual loss this business year on its struggling chip operations.
• Consumer confidence inches up. The ABC News Consumer Confidence Index gains 1 point, edging up to -48. A full 95% rate the U.S. economy negatively, but 48% maintain their own finances are excellent or good.
• Retail sales. Retail chain store sales increased 0.2% from a week ago, ICSC says, and declined 0.9% Y/Y. "Given this, ICSC Research expects same-store sales for March will be flat to down by one percent from the same month of the prior year." According to Redbook, national chain store sales fell 0.2% in the first week of March, and fell 1.4% Y/Y. "Retailers are looking particularly for an improvement in seasonal business as warmer weather draws closer."
• Wholesale inventories. Wholesale Inventories -0.7% in January vs. -1% consensus. December revised to -0.7% from -1.4%. Surprisingly, the contraction of inventories is happening at a slower pace than expected, signalling either weaker consumption or stronger wholesale buying.

Earnings: Wednesday Before Open

• LDK Solar (LDK): Q4 EPS of -$1.25 misses by $0.41. Revenue of $427M (-21.3%) vs. $422M. Sees Q1 revenue of $240-280M vs. $412M consensus and 2009 revenue of $1.4-1.8B vs. $1.93B consensus. (PR)
• Staples (SPLS): Q4 EPS of $0.36 misses by $0.06. Revenue of $6.17B (+15.9%) vs. $6.82B. Declines 2009 guidance du to limited visibility. (PR)

Earnings: Tuesday After Close

• Collective Brands (PSS): Q4 EPS of -$0.55 misses by $0.15. Revenue of $735M (-5.4%) vs. $767M. Expects store count to decline by 60 in 2009. (PR)
• Hovnanian (HOV): FQ1 EPS of -$2.29 misses by $0.82. Revenue of $374M (-66%) vs. $420M. Backlog of 1,660 homes, down 61% from a year ago. Cancellation rate drops to 31% from 42% last quarter and 38% last year. (PR)
• J Crew Group (JCG): Q4 EPS of -$0.20 beats by $0.07. Revenue of $388M (-3%) vs. $373M. (PR)
• Take-Two Interactive Software (TTWO): FQ1 EPS of -$0.52 beats by $0.21. Revenue of $259M vs. $211M. Sees FQ2 EPS of -$0.10 to -$0.20 vs. consensus of $0.04 and revenue of $200-220M vs. $264M. (PR)

Today's Markets

• Asian markets continued yesterday's rally in the U.S. Nikkei +4.55% to 7,376.12. Hang Seng +2.0% to 11,930.66. Shanghai -0.9% to 2,139.02. BSE closed.
• In Europe at midday, London +0.1%. Paris +1.3%. Frankfurt +1.6%.
• U.S. futures: Dow +1.0%. S&P +1.3%. Nasdaq +1.2%. Crude -1.4% to $45.05. Gold +0.7% to $902.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  10:00 Quarterly Services Survey
  10:30 EIA Petroleum Status
  2:00 PM Treasury Budget
• Notable earnings before Wednesday's open: AEO, LDK, NSM, SPLS
• Notable earnings after Wednesday's close: ZQK

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[User 107679:]

If a financial institution is deemed to be so critical to the survival of our economic system that the tax payer is forced to save the system by saving the institution then why should particular interests, such as hedge funds or private equity groups, be allowed gang up on those very institutions and short the stock while manipulating derivatives and influencing the rating agencies, for the specific purpose of crippling the institution at the tax payers expanse.
Shorting the stocks and derivatives and down grading the debt of companies on the public dole is against the publics interest and should be banned as are all other activities that cause serious harm to society at large. Shorting ourselves is a transfer of wealth from the public who has no choice about investing in the institution to sophisticated groups able to influence the outcome of their bets. After the tax payer is paid back then the institution is fair game, but not before.

Mar 11 07:42 AM

[Sherry B:]

Yes, it is extremely important to reinstate the UPTICK RULE!!! This would allow market stabilization and enable growth to begin again in the stock market.

Reinstating the Uptick Rule will prevent further destruction of stock values and provide overall stability to the stock market.

There are a combination of quite a few Funds now that short stocks that are over a $100 Billion dollar assets under management (realize these funds DID NOT EXIST when the Uptick Rule was in place) that are geared at shorting stocks. Their objective is to make money on stocks by driving the stock price down, therefore destroying stock value and damaging the market place.

There are so MANY stocks in the market place that are being driven down. All of a sudden the daily volume of a stock might be tripled, and there will not be any news to affect this company and no reason for the stock price to have fallen so much. The stock MUST have been shorted to an extreme level. The shorting company will then have three days to cover these stock shorts. If they don't, it will become a naked short transaction, which is a fraud violation.

In the past, the SEC stood behind a survey made in early 2007 that removed the Uptick Rule. The SEC was in error by conducting this survey in an up market and not conducting the survey in a down market, which is what the rule was created for. At that time in 2007, all these short hedge funds were not in existence. They were created as a result of the deletion of the Uptick Rule and companies searching for a way to make money in a down market.

The UPTICK RULE was put in place after the Great Depression in order to protect the market and PREVENT something like that from ever happening again!!!!

The UPTICK RULE needs to be reinstated as soon as possible!

Mar 11 08:34 AM

[eddie6442:]

It's rather obvious from yesterdays comments by the FED, SEC & GEITHNER that the government isn't really interested in removing the downward pressures which have destroyed the net worths and retirements of Americans....

When they have you by the b*lls, your hearts and minds will follow......... How appropriate for where America is headed .......... VERY SOON!!!!!!!!!!

IMHO

Mar 11 08:41 AM

[Speedspirit:]

Right now FAILURE IS NOT AN OPTION.

ALL FOR ONE AND ONE FOR ALL.

AMEN.

Mar 11 08:42 AM

[j_remington:]

bull trap

Mar 11 08:54 AM

[axelrod608:]

A thug knocks off a convenience store, steals %40, gets remand - no bail - and spends years in jail. Madoff steals $Billions and gets to keep living in his palatial condo, mailing priceless jewels to friends and family while the prosecutors screw around for months.

Our system of injustice is alive and well.

While white collar criminals get preferential treatment by the courts and prisons there is little or no deterrent for their greedy criminal enterprises.

Oh, and why aren't the perps that created the current financial crisis being prosecuted ? AAA rated subprime MBS's ??? Talk about FRAUD !!!!

Mar 11 10:02 AM

[J. T. Atkins:]

I believe that Sherry B knows what she is talking about.
Good reply concerning the up-tick rule.

Mar 11 10:25 AM

[TBill:]

The mark to market rule needs AT LEAST some revision. Formerly AAA rated mortgage backed tranches not likely to lose more than 10% of principle have to be moved to risk capital, which is forcing banks to sell into a market with little liquidity at 50 cents on the $. Hedge funds seem to be the only ones with funds to buy, and will get rich on these deals.
So, taxpayers are bailing out banks who are being forced to sell assets for half of what they are worth. And the powers that be can't see that? Come on, they are smarter than that!
Follow the money....

Mar 11 11:18 AM

[aware:]

UPTICK RULE MUST BE PUT BACK IN PLACE.

Mar 11 12:13 PM

[bobbobwhite:]

In Roman days, the low level perps got fed to the lions and tigers. I do think some might prefer to be in prison than that painful fate, as prisons now have computers, TVs, 3 hots, education. But it's still..."don't drop the soap in the shower". That will never change. See how far we have progressed in our justice?(I think I'll take the lions)


On Mar 11 10:02 AM axelrod608 wrote:

> A thug knocks off a convenience store, steals %40, gets remand -
> no bail - and spends years in jail. Madoff steals $Billions and gets
> to keep living in his palatial condo, mailing priceless jewels to
> friends and family while the prosecutors screw around for months.
>
>
> Our system of injustice is alive and well.
>
> While white collar criminals get preferential treatment by the courts
> and prisons there is little or no deterrent for their greedy criminal
> enterprises.
>
> Oh, and why aren't the perps that created the current financial crisis
> being prosecuted ? AAA rated subprime MBS's ??? Talk about FRAUD
> !!!!

Mar 11 12:49 PM

[Shaggieman:]

I've been e-mailing the SEC to reinstate Uptick Rule. This is their reply:

Dear Mr. ,

Thank you for your email in which you express concerns about reinstating the uptick rule. We are aware of the significant concerns on the part of many individuals and entities about this issue and appreciate your bringing this information to our attention.

Please be advised, that the Office of Inspector General has limited jurisdiction and lacks authority to reinstate the uptick rule. Therefore, you may wish to contact the Office of Investor Education and Advocacy ([e-mail]) to voice your support for these measures.

Sincerely,
Natasha
Legal Assistant
On behalf of the Office of Inspector General

of the U.S. Securities and Exchange Commission

Mar 11 12:56 PM

[bbowen7:]

One would hope that the feds would not stop with one perp, in a scheme that took in over $50 billion, and never made a trade. It seems right to focus initially on getting as much money as possible back, but then to go after the sons, business partners, wife, family dog, and anybody else who knowingly profited from the crime of the new century.

Mar 11 02:46 PM

[backtoreality:]

not just the uptick...the glass-steegal act is also needed to keep the bank crooks ot of brokerage...and vise versa

Mar 11 03:48 PM

[backtoreality:]

retired broker

Mar 11 03:49 PM

[AndrewBaker:]

Shorting is part of the market: the people who loan the stock for the purpose are long and believe it will do well going forward, so they make some extra money by lending it out. Many shorters get it wrong and have to buy back at a higher price. All this adds liquidity to the market, and if you bring back the uptick rule, it won't affect any eventual outcome, only make it all take a bit longer. Yes, as taxpayers we will hate our money going down the drain, but it's being poured there by our politicians to help put right the wrongs of greedy financiers, and taking our anger out on genuine market participants won't help anyone.

Mar 11 04:32 PM

[hpcooperjon:]

Would you please explain the glass-steegal act, sir? Is that the proper way to spell "steegal"? Thanks


On Mar 11 03:49 PM backtoreality wrote:

> retired broker

Mar 12 01:30 AM

[hpcooperjon:]

Please correct me if I'm wrong, but wasn't mark to market accounting invented by Jeff Skillings of Enron as part of a scheme to enrich themselves? How did it get to be the standard in accounting? Is it according to GAAP now? It was not when I was in the field. The old GAAP rule was "lower of cost or market", and it is still the proper way to account for asset values in my opinion. But then, I'm an old guy with old values.

Mar 12 01:36 AM