- 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 (NYSE: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)
- 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 (NYSE: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 (NYSE: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 (OTCPK:TOSBF) 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 (NYSE: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 (NASDAQ: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 (NYSE: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 (NYSE: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 (NASDAQ: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)
- 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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